What is the stock market?

How shares, exchanges, and trading actually work.

TL;DR

The stock market is where shares of publicly traded companies are bought and sold. It exists to let companies raise capital and to let investors own pieces of those companies — with prices set continuously by supply and demand.

The two markets

There's a primary market where companies first issue shares (IPOs and direct listings) and a secondary market where those shares trade among investors. When people say 'the stock market', they almost always mean the secondary market.

Major exchanges

The vast majority of US trading happens on two venues.

→NYSE — New York Stock Exchange. Mostly older industrial names plus large-caps.
→Nasdaq — primarily technology and biotech.
→BATS / IEX — alternative venues that compete on routing and fairness.
→Internationally: LSE (London), Euronext (EU), TSE (Tokyo), HKEX (Hong Kong).

How prices form

Each stock has a continuously updated bid (highest buyer) and ask (lowest seller). When they match, a trade happens. Market makers and high-frequency firms fill the gap by quoting both sides; their profit is the spread.

Worked example

What happens when you buy 10 shares of AAPL

You click 'buy 10 AAPL at market' in your broker.

1Broker routesOrder goes to the broker's execution venue (often a wholesaler)
2MatchWholesaler matches against their book or routes to exchange
3Fill10 shares at the current ask, ~$230.05 each
4SettlementT+1 — cash and shares change hands the next business day
5CustodyShares held in 'street name' by your broker on your behalf

Takeaway

Most retail trades never touch an exchange directly — they're internalised by wholesalers who pay your broker for the order flow (PFOF).

Common mistakes

What to avoid

!Confusing 'the market' with the S&P 500 — there are 4,000+ US-listed stocks beyond the index
!Thinking stocks have a single 'true' price — they have bid/ask spreads that widen in low liquidity
!Treating market hours as 9:30–16:00 ET only — pre-market and after-hours have real volume
!Believing the exchange holds your shares — your broker does, in street name

Self-check

Test yourself

Q1What's the difference between primary and secondary markets?+

Primary is where shares are first issued (IPO); secondary is where existing shares trade between investors.

Q2Why are bid/ask spreads typically tighter in mega-cap stocks?+

Higher liquidity — more buyers and sellers competing means market makers can quote tighter and still profit.

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