Stock Market Definition | Nasdaq

What is the stock market?

The stock market broadly refers to the collection of exchanges and other venues through which shares of publicly traded companies can be bought, sold, or issued. These financial activities take place through institutionalized formal physical or electronic platforms or through an over-the-counter market that operates under a specific set of regulations.

One of the primary roles of the stock market today is to provide a means for companies to raise capital through the sale of ownership shares to public investors. At the same time, the stock market allows private investors to buy shares in public companies and become co-owners of the companies.

How does the stock market work?

In short, the stock market provides market participants with the confidence they need to trade in stocks and other financial instruments by providing a regulated and secure environment to trade. Indeed, the stock market is a secure and regulated environment where market participants can trade stocks with little or no operational risk. It is also worth mentioning that in order to buy and sell shares, you must go through an intermediary called a licensed brokerage.

The scholarship also serves as primary markets and secondary markets. This means that the primary market is where shares are first issued and sold to investors through the process known as an initial public offering (IPO). If you have experience in stock market investing, you might have heard of some of the most recent popular IPOs in 2021 like Rivian Automobile Inc. (NASDAQ: RIVN) or coupang (NYSE: CPNG). More importantly, the IPO process allows companies to access a new pool of investors to help the company raise capital.

After a company goes public, stock exchanges serve as a trading platform that facilitates the regular buying and selling of listed stocks. This represents the secondary market. The exchanges earn a commission for each trade made on its platform during secondary market activity.

When buying shares in the primary market, investors buy shares directly from the issuer (company). While the secondary market is where the existing shares of the company are traded among investors.

Shares can be bought and sold in private and public companies. The buying and selling of shares is often done through a stockbroker and/or a stockbroker’s corresponding online trading platforms, also known as electronic trading platforms.

How to invest in the stock market

Now that we know what the stock market is and how it works, let’s talk about how to start investing in stock market stocks. The stock market is one of the greatest generators of wealth ever created. Investing money in the stock market can be confusing at first. This is why it is important to get proper stock market education and ALWAYS do your due diligence before investing money in the stock market today.

Let’s say you have saved up and allocated $10,000 to invest. What happens next? The decision to hire a financial advisor or simply do the research on your own to choose the best stocks to buy for beginners is entirely up to your free will. Investing in the stock market might be easier than many would have thought because all you need is an online brokerage account to get started.

However, there are a few fundamental questions any new investor should ask themselves before beginning this journey.

  1. What type of investor are you?
  2. Which online brokerage platform best suits my investment goals?
  3. How much money do you plan to use to start investing
  4. What type of asset class meets your objectives? Stocks, mutual funds, options, exchange-traded funds (ETFs), bonds, and more. ?
  5. What is your time horizon for investing in the stock market? Investing for the short, medium or long term?
  6. How do you intend to manage your portfolio?

What is the stock market doing today?

When investors ask what is the stock market doing today?, they often refer to the performance of major stock market indices. The three most popular are S&P 500 Index, Dow Jones Industrial Averageand The Nasdaq Composite Index.

The Standard & Poor’s 500 Index

The Standard & Poor’s 500 Index, or S&P 500 Index, is a market capitalization-weighted index of the 500 major publicly traded companies in the United States. The S&P 500 Index is widely recognized as one of the best indicators for measuring the performance of major US stocks and the US stock market as a whole.

Source: TD Ameritrade TOS – 20 year historical performance

Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average, also known as the Dow Jones or Dow 30, is a stock market index that tracks the performance of 30 major companies listed on the New York Stock Exchange. The Dow Jones is one of the most followed stock indices in the world and is often used as a barometer of the overall health of the stock market.

The index was founded by Charles Dow in 1896 to serve as a proxy for the entire US economy. Since then it has been one of the most important stock market indices.

Nasdaq Composite Index

The NASDAQ Composite Index is a broad market capitalization-weighted index of stocks across the three levels of NASDAQ; Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971. Fast forward to today, there are over 3,700 stocks listed on the Nasdaq stock exchange. The Nasdaq is one of the three major stock market indices in the United States. Along with the Dow Jones Industrial Average and the S&P 500 Index.

The index can be used as a measure of the performance of technology stocks and growth stocks. However, since it includes all stocks traded on the Nasdaq stock exchange, it is not as targeted as some other indices. For example, the Nasdaq-100 index only includes non-financial companies listed on the Nasdaq.

Source: TD Ameritrade TOS – 20 year historical performance

The 10 most weighted stocks in the Nasdaq Composite Index as of June 3, 2022

  1. Apple Inc. (NASDAQ: AAPL) – 12.31%
  2. Microsoft Corporation (NASDAQ: MSFT) – 10.51%
  3. Inc. (NASDAQ: AMZN) – 6.46%
  4. Tesla Inc. (NASDAQ: TSLA) – 3.75%
  5. Alphabet Inc. (NASDAQ: GOOG) – 3.75%
  6. Alphabet Inc. (NASDAQ:GOOGL) – 3.57%
  7. Meta Platforms Inc. (NASDAQ: FB) – 3.42%
  8. NVIDIA Corp. (NASDAQ: NVDA) – 3.41%
  9. Broadcom Inc. (NASDAQ: AVGO) – 1.98%
  10. PepsiCo Inc. (NASDAQ: PEP) – 1.96%

In summary

The Stock Exchange is a global financial center. Traders, financial institutions and funds can buy and sell shares of a company. There are many reasons to invest in the stock market. On the one hand, it offers the possibility of obtaining a good return on your investment. Over the long term, stocks have outperformed most other investments, such as bonds and real estate.

Additionally, investing in stocks gives you the opportunity to diversify your portfolio and potentially reduce your overall risk. Since you can buy and sell stocks quickly and easily, it’s a great way to stay invested in the market without having to put all your eggs in one basket.

There are risks in investing in the stock market. However, with proper education, research, and diversification, these can be minimized. In conclusion, if you want to invest your money, the stock market is potentially worth looking into.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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