General Knowledge: The Stock Market

The Stock market is a market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter market. Also known as the equity market the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership in the company. The stock market makes it possible to grow small initial sums of money into large ones, and to become wealthy without taking the risk of starting a business or making the sacrifices that often accompany a high-paying career.

The stock market lets investors participate in the financial achievements of the companies whose shares they hold. When companies are profitable, stock market investors make money through the dividends the companies pay out and by selling appreciated stocks at a profit called a capital gain. The downside is that investors can lose money if the companies whose stocks they hold lose money, the stocks' prices goes down and the investor sells the stocks at a loss.

The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings. Institutional Investors typically purchase most of these shares from investment banks. All subsequent trading goes on in the secondary market where participants include both institutional and individual investors.

Stocks are traded through exchanges. Today, most stock market trades are executed electronically, and even the stocks themselves are almost always held in electronic form, not as physical certificates.