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.
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.
Companies start as privately held and are not listed on any stock exchange. Its leaders must decide to start selling shares to the general public 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 for particular stocks 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, depending on how the index itself does.
Changes to import or export laws or those that significantly impact a country’s economy can cause considerable shifts. Political tensions or new international deals can also play a part.