Stocks are shares of a company. Owning a stock (or share) means you own part of that company. Being part owner of a company entitles you to a share of the future earnings of that company.
How are stocks priced?
The price of a stock is simply the last price that a seller of the stock sold for and the buyer of the stock paid. The last price that a stock traded at is the price that is reflected in the stock market. It is important to note that whether the price is going up or down, for every buyer there is always a seller.
What is a stock market?
Investors needed a place where buyers and sellers could go to make these transactions. This is what a “stock market” is. Pretty good name, eh? They used to be physical spaces, now they are online exchanges.
What makes stock prices change?
If the company you own is profitable and becomes more valuable to would-be buyers the price of its shares will increase. If the company becomes less valuable over time, however, the stock price will decrease for the same reason – investors will not be willing to pay a higher price for a less valuable company. In general, companies that are worth more and have greater future earnings potential will fetch higher prices. Bear in mind, however, that stock prices are also strongly influenced by investor sentiment.