How Does the Stock Market Work?
A stock market is where investors meet to buy and sell shares. Markets used to be literal places—they were trading floors in New York, London, Tokyo and Frankfurt where prices for stocks were set in an ongoing live auction. Now most bids to buy and sell stocks are made electronically. You access these global electronic markets by placing an order through a broker. The cost for each trade typically runs from $5 to $10 per order, depending on your broker.
Stocks are listed on the market by short names known as ticker symbols. When you search the ticker symbol “MSFT” on a news site such as MONEY or on your broker’s website, the price quoted is the amount investors paid for the most recent lot of Microsoft shares traded.
Prices on markets move very quickly, as demand for stocks ebbs and flows along with the latest news and investors’ moods. So the price you seequoted for a stock may not be exactly the price you pay when you try to buy it.
Market watchers and the news media like to track the market’s movement by watching three well-known indexes. The Dow Jones Industrial Average, or just Dow, was the first broad index of stocks and tracks 30 leading U.S. companies. The S&P 500 follows the fortunes of the 500 biggest, most valuable U.S. companies. The Nasdaq Composite measures only companies listed on the Nasdaq; the index is relatively heavy on high-growth and technology-driven companies.