The stock market allows people to buy and sell shares in public companies. Companies issue stock to raise money and investors buy the shares when they believe that the company is going to be successful. In turn, these investors get dividends and appreciation in the value of the stock. However, they can lose their money if the company runs out of money.
There are many factors that affect stock prices, from supply and demand to business results and future prospects. Professional investors monitor the markets round the clock and track data over months and years. Individual investors can do the same but must have the inclination, time and knowledge to follow the market. Individuals must carefully consider their investment strategies and carefully analyze the companies they are considering.
The market is volatile. Prices of individual companies can go up or down dramatically. These ups and downswings are reflected in stock indexes. The average return of the S&P 500 is 10% per year, but that number may change with inflation. In addition, there is a significant risk of loss in the stock market, so the investor should be aware of market volatility.
The stock market is a marketplace where buyers and sellers negotiate price. This process is designed to make the market fair for both parties. Every exchange keeps track of supply and demand of stocks to determine the price of each security. This process is called price discovery, and it is the fundamental process by which the market works.