Stock market

What is stock market?

The stock market works like an auction where investors buy and sell shares of stocks; These are a small piece of ownership of a public corporation. Stock prices usually reflect investors' opinions of what the company's earnings will be. ... Buyers try to get the lowest price so that they can sell it for a profit later.

How the Stock Market Works

The stock market works like an auction where investors buy and sell shares of stocks; These are a small piece of ownership of a public corporation. Stock prices usually reflect investors' opinions of what the company's earnings will be.

Traders who think the company will do well bid the price up, while those who believe it will do poorly bid the price down. Sellers try to get as much as possible for each share, hopefully making much more than what they paid for it. Buyers try to get the lowest price so that they can sell it for a profit later.

How to Invest in the Stock Market

Average investors can't trade on the stock market directly. Instead, they must hire a broker-dealer to execute the trades. There's a wide variety of choices:

• Fee-only financial advisers who charge an annual fee, usually 1% of assets
• Online dealers like E-Trade, who charge a small fee per transaction
• Large banks, like Goldman Sachs or Well Fargo Advisors, provide financial planning in addition to executing trades
• Small brokers who just execute orders 

Many investors buy stocks through mutual funds, and these are companies that buy a collection of stocks. The investor buys shares in the mutual fund instead of owning the stocks themselves, taking advantage of the mutual fund manager's expertise. Since there are so many stocks, this diversified investment has a lower risk than a single stock.

Most of the stocks traded are common sVtocks. But some investors buy preferred stocks. They pay an agreed-upon dividend at regular intervals and they don't have voting rights. They are less risky but they also offer a smaller return.