Key idea
Beneath the noise, the stock market does two simple things: it helps companies raise money, and it lets owners trade their shares.
The stock market can seem chaotic, but its core function is simple. It is a place where companies raise money from investors, and where those investors can later buy and sell their ownership from one another.
Two markets, one system
| Market | What happens |
|---|---|
| Primary market A company sells new shares to raise capital (e.g. an IPO) | |
| Secondary market Investors trade existing shares among themselves |
In the primary market, a company issues shares for the first time and receives the money to grow. In the secondary market, which is what most people mean by "the stock market," investors trade those shares with each other, and the company is not directly involved.
What moves the price
A share's price is set by supply and demand, moment to moment. More buyers than sellers, and the price rises; more sellers than buyers, and it falls. Behind those buyers and sellers are views about how the business will do, which is why prices move on news, results, and mood.
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