Lesson 1 of 5 · 6 min read
How does the stock market work?
The stock market is a giant marketplace where buyers and sellers of shares come together.
A marketplace for ownership
On a stock exchange (such as Euronext Amsterdam or the NASDAQ), shares of listed companies are traded. Every second, buyers and sellers are matched at a price both agree on. That last price is the quote.
Primary vs. secondary market
In an initial public offering (IPO), the company itself sells new shares to raise money — the primary market. After that, investors trade those shares among themselves on the secondary market; the company no longer receives that money. Most trading is secondary.
Supply and demand set the price
No one 'sets' the price. If more people want to buy than to sell, the price rises; the other way around, it falls. The price reflects the collective expectation of all investors about the company's future.
Remember this
- The stock market is a marketplace where buyers and sellers are matched; that last price is the quote.
- In an IPO the company raises money itself (primary market); afterwards investors trade among themselves (secondary).
- On the secondary market the company no longer receives the money.
- Supply and demand set the price, which reflects the collective expectation.
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