Let’s start with a stock market definition, shall we? In a nutshell, the stock market is where investors can buy and sell securities, or investments, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs) and cash equivalents like Treasury securities. Also known as a securities exchange, each market is subject to government regulation and has its own set of rules. The stock market also creates and maintains what are called indexes. A securities market index indicates the performance of the stock market. How it works is that the index measures the average value of a collection of securities. Some of the major indexes are the Dow Jones Industrial Average (DJIA), the S&P 500 and the NASDAQ. When an index drops, it means the average value of all the stocks in the index is down from the previous business day. Conversely, when an index is on the rise, it means that the average value of all the stocks in the index is up from the prior day. These securities are chosen as a sample that reflects how the market in general is behaving. But because these indexes include companies from a myriad of industries, they are seen as solid indicators how the U.S. economy is doing overall.

HOW DOES IT WORK?

You can think of a stock market as a safe and regulated auction house where buyers and sellers can negotiate prices and trade investments.

You might’ve watched scenes in movies or on TV shows where buyers and sellers are on the floor of the New York Stock Exchange fervently yelling “buy, buy, buy!” or “sell, sell, sell!” Whereas historically the stock market has been a physical marketplace, such as the New York Stock Exchange and the American Stock Exchange, these days securities are more commonly traded through a collection of trading platforms. Nearly all transactions these days are done digitally and not in person.