What is the stock market?

Cheat Sheet:

  • After the IPO, shares get traded (bought and sold) directly between investors on the stock market.
  • The stock market is where stocks are traded. 
  • Stock isn’t sold at a fixed price.  The stock market is a giant auction with prices constantly changing due to supply and demand.

When you buy stock on the stock market, you aren’t buying it from the company – you’re buying it from an existing shareholder. Likewise, when you sell your shares, you’re not selling them back to the company – you’re selling them to some other investor.

The U.S. stock market includes the New York Stock Exchange and Nasdaq.  Different stocks trade on the two exchanges.  Nasdaq traditionally has been the exchange for tech stocks like Apple, Facebook, and Intel, while NYSE has been home to big, established household names like IBM, P&G, and Exxon, but those lines have blurred more recently.

Stock exchanges bring buyers and sellers together in an organized way. This is important because stock isn’t sold at a fixed price like things you buy in a store. It’s a giant auction that operates continuously during market hours (9:30 am to 4 pm ET). The price a buyer is willing to pay is the “bid,” while the price at which a seller is willing to sell is the “ask.” The bid and ask change constantly throughout the trading day. Buyers and sellers are matched based on the highest bid and lowest ask, and the result is an executed trade.

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