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What Is the Stock Market?

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The stock market lets companies raise money and investors make money. When a company decides to issue shares to investors, it’s offering partial ownership in the company. Issuing shares helps companies raise money and spread risk. Instead of finding investors one by one, companies who qualify and register offer their shares in a stock exchange. This offering is known as an initial public offering (IPO), also called “going public.” An IPO creates a primary market for the company’s shares.

In the secondary market, investors buy and sell shares on a stock exchange like the New York Stock Exchange (NYSE) or the Nasdaq. Investors in stocks could be large entities like commercial banks, or they could be individuals just like you. Rather than buying the shares from the issuing company, you buy them from someone who already owns them. Most major stock exchanges engage in trading from 9:30 am to 4 pm ET, known as trading hours. While trading does occasionally take place outside these hours, you’ll want to plan on making any sales or purchases during trading hours.

If you want to get in on what the stock market has to offer, you don’t have to travel to New York, put on a blazer and start yelling “buy! sell!” You just need a broker to act as your representative. This could be a person you hire, but more likely you can just open a brokerage account with a large retail broker like Fidelity, TD Ameritrade or Schwab. The internet has made this process much simpler.

You also don’t have to be rich to start investing, but it’s important to look for low-fee options. Fees eat into your gains and can cost you tens of thousands of dollars over the years you invest.

Investing in the stock market is one of the most popular methods to build wealth and save for retirement. While you don’t need to pore over market data for hours every week to succeed, having some fundamental knowledge can help you better understand the risks involved and how to mitigate them as best you can.

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