How do stocks work? We’ll do our best to give you expert-level knowledge of the ins and outs of how stocks work and why they matter to investors here.
A stock represents a means for companies to raise capital outside of a regular revenue stream. When companies sell shares of stock, they sell a small piece of ownership to investors.
Companies start as privately held and are not listed on any stock exchange. Its leaders must decide to start selling shares through an initial public offering (IPO).
In a sense, shares of stock are priced based on supply and demand. The primary factor driving the demand centers around a company’s ability to earn money and ultimately grow.
A country’s economy can play a role in a stock’s current market price. Unemployment rates, inflation, or gross domestic product can profoundly impact the stock market at large.
Any event that affects the entire stock market can impact the price of a stock. The S&P 500 can pull stock prices up or send them into a tailspin.