Stock Market

Definition of  'Stock Market'

The stock market makes it possible

The market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets. 

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.

Investopedia explains 'Stock Market'

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. The two biggest stock exchanges in the United States are the New York Stock Exchange, founded in 1792, and the Nasdaq, founded in 1971.

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

Stock market trades are executed electronically

If you want to know how the stock market is performing, you can consult an index of stocks for the whole market or for a segment of the market. Examples include the Dow Jones Industrial Average, Nasdaq index, Russell 2000, Standard and Poor’s 500, and Morgan Stanley Europe, Australasia and Far East index.

Stock Market participants

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.

Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.

Stock Market participants

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations.

Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds, investor groups, banks and various other financial institutions).


The rise of the institutional investor has brought with it some improvements in market operations. There has been a gradual tendency for "fixed" (and exorbitant) fees being reduced for all investors, partly from falling administration costs but also assisted by large institutions challenging brokers' oligopolistic approach to setting standardised fees.