The stock market explained: stocks, shares, exchanges and the big indexes

What is a stock, or a share?

A stock (or share) is a unit of ownership in a company. Own a share and you own a tiny piece of the business: its assets, its profits and its risks. Companies sell shares to raise money; later, investors trade them with each other.

What is the stock market?

It is the network of exchanges and trading venues where shares are bought and sold. The two big US exchanges are the New York Stock Exchange (NYSE) and Nasdaq. Neither is a company you invest in: they are marketplaces. In the US they are overseen by the Securities and Exchange Commission (SEC) and the industry self-regulator FINRA. Nobody “owns the stock market”; the shares of listed companies are held by millions of people, funds, pension plans and institutions.

Why prices move

A price is just the last agreement between a buyer and a seller. Prices rise when more people want to buy than sell, and fall when it flips. Underneath that: company results, expectations about future earnings, interest rates, the broader economy and sentiment. Often a stock falls even on good news because the news was less good than expected.

Indexes: the scoreboards

• S&P 500: roughly 500 large US companies, weighted by size. Often used as shorthand for “the US market”.
• Dow Jones Industrial Average: 30 large US companies, weighted by share price.
• Nasdaq-100: 100 of the largest non-financial companies on Nasdaq, heavy in technology.

You cannot buy an index directly, but funds exist that track one (see our guide to ETFs and index funds).

Sizes and styles

• Market capitalisation (market cap) is share price times shares outstanding: the market’s price tag for the whole company.
• Large-cap companies are the biggest and often steadier; small-caps are smaller and can swing more. “Blue chip” is an informal name for large, long-established companies.
• Growth stocks are priced for expected fast earnings growth; value stocks look cheap relative to current earnings or assets. Neither label guarantees an outcome.

Hours and holidays

US exchanges are open weekdays from 9:30am to 4:00pm Eastern, with limited pre-market and after-hours trading around those times. They close for public holidays and, on some days, close early. Check the exchange’s published calendar for the current year.

Reading “the market is up/down today” as news about you is usually a mistake. Ask how your holdings did against your own plan.