Who buys my shares when I sell?

Another investor, a fund, or a market maker on the other side of the exchange’s order book. You never need to find them yourself; the exchange matches your order automatically.

Is the stock market the same as the economy?

No. The market reflects investors’ expectations about the future profits of listed companies. It can rise during a weak economy and fall during a strong one when expectations shift.

Why are there several exchanges?

Companies choose where to list, and exchanges compete on fees, technology and prestige. In the US, most large companies list on the NYSE or Nasdaq, and shares can trade on many other venues as well.

How the Stock Market Works: A Beginner’s Explanation

The stock market is not one place, and it is not a company you buy from. It is a network of exchanges where investors trade shares with each other. When you buy, someone else is selling, and the price you both agree on becomes the new quote.

This guide walks through the pieces: the exchanges that host the trading, the brokers that give you access, and the mechanics that turn millions of orders into a single price.

Primary market vs. secondary market

The first time a company sells shares, it does so in the primary market through an initial public offering. That money goes to the company. Everything that happens afterward is the secondary market: investors trading existing shares among themselves.

Almost all daily activity is secondary. When you buy Apple shares today, Apple receives nothing. You are buying from another investor who decided to sell.

What exchanges do

An exchange such as the New York Stock Exchange or Nasdaq is a marketplace with rules. It lists companies that meet its standards, publishes prices, and runs the matching engine that pairs buy orders with sell orders.

Matching follows two rules: price first, then time. The highest bid and the lowest ask trade first. Among equal prices, the order that arrived earlier goes first. This happens electronically in microseconds.

Brokers and market makers

Individuals cannot send orders to an exchange directly. A broker holds your account, takes your order and routes it to an exchange or another trading venue. Most brokers now charge no commission on stock trades.

Market makers are firms that stand ready to buy and sell a stock at all times, quoting both a bid and an ask. They earn the small gap between the two, the spread, and in exchange they make sure there is always someone to trade with.

How a price is set

At any moment a stock has a bid, the most anyone will pay, and an ask, the least anyone will accept. The "price" you see is usually the last trade, which happened at one of those two levels.

When buyers get eager they lift the ask, and the next ask is higher, so the price rises. When sellers get eager they hit the bid, and the price falls. Multiply that by thousands of participants and you get the continuous movement on a chart.

The market opens at 9:30 a.m. Eastern with an opening auction that sets the first price of the day, and closes at 4:00 p.m. with a closing auction that sets the official close.

How the Stock Market Works: Exchanges, Brokers and Prices