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What is a Stock Market?

A stock market is a marketplace where stocks are bought and sold. It can exist as a physical market, an electronic market or a combination of both.

Stock markets serve numerous functions, chief among them being an economic function. Stock markets facilitate the transfer of capital from investors to users of capital. They allow corporations looking to expand to raise capital from investors in the primary market and facilitate trade between buyers and sellers of stock in the secondary market.

Another function of a Stock market is its continuous pricing function. This market feature enables interested parties to know at any time, what the price of a stock is. Price quotes can be accessed through financial websites and financial TV or radio stations. This conveniently allows investors to know precisely how much their stock holdings are worth.

Perhaps the most important of all the functions of a stock market is its FAIR PRICING function. The workings of the stock market enable buyers and sellers of stock, to receive the best price possible for a particular stock.  This fair pricing function is as a result of the competition between the numerous buyers and sellers of stock who operate in the stock market daily.

Although dozens of stock markets exist in the U.S, the two most prominent stock markets are the New York Stock Exchange (NYSE) and the NASDAQ. Billions of dollars worth of stock are traded on both markets everyday and a lots of media attention is focused on each. Stocks of most of the major U.S corporations are listed on both these markets with the NASDAQ being favored by technology companies.

While they perform the same functions, the two exchanges are very different in how they operate. While the NASDAQ is a wholly electronic marketplace, matching buy and sells orders through its computer systems, the NYSE maintains a physical trading floor with human dealers that complete buy and sell orders in a lively fashion. The NYSE however, does also have an electronic trading system that now handles the bulk of all daily buy and sell orders.

In order to ensure that investors are protected against fraud, stock exchanges require corporations looking to list their shares on the exchange, to release all financial statements to the public. Both exchanges also require corporations to meet certain financial requirements. Corporations that are listed but who then fall short of these financial and transparency requirements are usually de-listed from the stock exchange.

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Why Does the Stock Market Price Rise and Fall?

The question about what moves the tock market is quite complicated. There are several visible and invisible factors that cause the rise and fall in stock market. There are several issues on political, economic and social level that include inflation, change in interest rates, earnings of the people, oil and energy prices, war, peace and terrorism, political and domestic situation and so on. While some of these factors may have long-term consequences for the stock market, others may have only short-term implications.

21 comments

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