When a company is doing business and doing it well, at some point they think about expanding their business to attain greater profits. Business expansion requires more money or capital expenditure. There are two ways a business can get this money: either though a bank loan or by making the company public (“going public”).

“Going public” means that the company is inviting the public to own a share, also called stock, in the company. How does the company get this stock to the public? It does it by offering it at a stock market.

What is the stock market? A stock market is a place that brings together many different companies selling shares and many different buyers buying shares. It is convenient to carry out this exchange in a stock market rather than go through the hassle of negotiating and bargaining with each buyer and seller individually.

What is a stock exchange? A stock market is also called a stock exchange. Companies list their shares on the stock exchange so that buyers and sellers can easily and conveniently trade them. The New York Stock Exchange and the NASDAQ are examples of stocks exchanges in the US. Shares are traded (bought and sold) at the stock exchange without the direct involvement of the company. The buyers and sellers of shares can use a stock broker to buy and sell shares. A stock broker is a person who earns a commission for performing this service: he buys and sells shares on behalf of shareholders.

You can also bypass a stock broker and buy and sell shares directly through an online stock market. You simply make a free online account on a site like Ameritrade and start trading – setting up is that simple!

How can you make money from the stock market? The basic reason for understanding the stock market is so you can make money from it. Since you buy shares in a company, you are entitled to receive a part of the company’s profits. You can also lose money on the stock market if you buy shares in companies that are not doing well or go bankrupt. You want to maximize your profits by buying only those shares that are likely to appreciate (increase) in value. You also want to minimize your risk by buying shares in companies that will be likely to do well.

What is the stock market analysis? A stock market that is trending upward, where share prices are rising and earning money for stockholders is called a bull market, whereas a stock market that is slumping, with plummeting share prices and a gloomy outlook is called a bear market.

Generally speaking, the longer you hold on to stock, the better the chances of profiting from it over the years. Holding stock for the short term (1 year or less) is considered volatile and risky, whereas holding stock for a long term is considered an investment.

Understand what is the stock market and you will understand how to use it for investment purposes. A wise investment made in the stock market today can bring you a stream of money for years to come!