Every weekday, trillions of dollars of shares change hands. Headlines say the market “rose” or “tumbled”, but what is actually happening? This guide walks through the machinery, from what a share is to why a price changes thousands of times a second.
What is a stock?
A stock, or share, is a small slice of ownership in a company. If a company has 1 billion shares and you own 1,000, you own one-millionth of the business: a claim on its future profits and, usually, a vote at its shareholder meetings. Companies sell shares to raise money for growth without taking on debt. In exchange, investors get the chance to share in the company’s success through rising share prices and dividends.
The first sale of shares to the public is the initial public offering (IPO), the primary market. After that, investors trade those shares with one another on the secondary market, which is what most people mean by “the stock market”. When you buy shares of a large company through your broker, your money goes to another investor, not to the company.
Exchanges: the marketplaces
A stock exchange is a regulated marketplace that matches buyers with sellers. Major examples include the New York Stock Exchange and Nasdaq in the US, the Toronto Stock Exchange, the London Stock Exchange, Japan Exchange Group and India’s NSE and BSE. Today almost all trading is electronic. Exchanges set listing standards, publish prices, and enforce trading rules, while national regulators oversee the whole system.
The order book: where price is born
At the heart of every exchange is the order book, a live list of everyone who wants to buy (bids) and sell (asks) at each price. Imagine a stock with these orders:
| Bids (buyers) | Asks (sellers) |
|---|---|
| 500 shares @ $99.98 | 300 shares @ $100.02 |
| 1,200 @ $99.95 | 800 @ $100.05 |
| 2,000 @ $99.90 | 1,500 @ $100.10 |
The highest bid is $99.98 and the lowest ask is $100.02, so the spread is 4 cents. A trade happens only when a buyer and seller agree. If you send a market order to buy 300 shares, you immediately take the seller at $100.02 and the “last price” becomes $100.02. If you send a limit order to buy at $99.95, you join the queue and wait.
Now imagine a wave of buyers who exhaust all the sellers at $100.02 and $100.05. The best available ask is now $100.10, and that is where the next trade prints. That is all a price rise is: buyers being more eager than sellers, consuming the available supply at each level.
Market makers and liquidity
Market makers are firms that continuously post both bids and asks, standing ready to trade. They earn the small spread between the two and, in return, keep markets liquid so you can trade instantly. Heavily traded stocks have spreads of a penny; small, obscure stocks can have spreads of several percent, a hidden cost every time you buy and sell.
Why prices move
In the short run, prices move whenever the balance of buy and sell orders shifts. That balance shifts because of new information and changing expectations:
- Company news: earnings, guidance, product launches, lawsuits, management changes.
- Economic data: inflation, jobs and growth figures change expectations for interest rates and profits. See our guide to economic indicators.
- Interest rates: higher rates make future profits worth less today and make bonds more competitive with stocks.
- Sentiment and flows: fear, greed, fund inflows and forced selling can move prices beyond what fundamentals justify, for a while.
Crucially, markets react to the surprise, not the news itself. A company can report record profits and see its stock fall because investors expected even more.
In the short run, the market is a voting machine; in the long run, it is a weighing machine. This saying, attributed to the investor Benjamin Graham, captures the difference between sentiment-driven daily moves and the long-term pull of real business value.
Indices: taking the market’s temperature
An index tracks a basket of stocks to summarise how a market is doing. The S&P 500 follows 500 large US companies, weighted by market value, so the largest firms have the most influence. The Nasdaq-100 holds the 100 largest non-financial Nasdaq companies and leans toward technology. The Dow Jones Industrial Average tracks 30 blue chips weighted by share price, an older method. Internationally, you will see the FTSE 100, DAX, Nikkei 225, S&P/TSX Composite and Nifty 50.
You can watch them all live on our markets dashboard. The S&P 500 heatmap there shows each company as a block sized by market value, which makes it obvious when a handful of giants are driving the index.
Bull markets, bear markets and corrections
A rise of 20% or more from a low is called a bull market; a fall of 20% or more from a high is a bear market. A drop of 10–20% is a correction. Historically, US stocks have spent far more time rising than falling, and every bear market has eventually been followed by new highs, though recovery times have ranged from months to many years.
Trading hours and after-hours
US exchanges hold their regular session from 9:30 a.m. to 4:00 p.m. Eastern time, with pre-market and after-hours sessions where liquidity is thinner and spreads wider. Many earnings reports are released outside regular hours, which is why stocks can “gap” sharply at the next open. Crypto markets, by contrast, trade 24/7, and forex trades 24 hours a day on weekdays.
Key takeaways
- A stock is fractional ownership in a real business.
- Prices are set in the order book by the balance of buyers and sellers.
- News moves prices by changing expectations; surprises matter most.
- Indices summarise the market but can be dominated by a few giants.
- Over long periods, business results, not headlines, drive returns.
Next, learn how most people actually invest in the market, through ETFs and index funds.
Educational content only, not investment advice. See our disclaimer.