Understanding the Stock Market and How it Operates

What Is the Stock Market and How Does It Work? - NerdWallet

The stock market comprises exchanges like the Nasdaq and the New York Stock Exchange. Stocks are recorded on a specialized exchange which unites sellers and buyers while acting as a market for those particular stock shares. The exchange monitors the demand, supply, and price of each stock. 

Today, online brokers represent individual traders in the stock market. As a trader, you can only initiate your stock trades via a broker who manages the exchange on your behalf. The Nasdaq and NYSE remain open from 9.30 am to 4 pm EDT. After-hours and premarket trading sessions are also available based on your broker. Read on for more insights on the stock market.

Stock Trading Knowledge

Many investors may be conversant with developing a diverse stock index funds or stocks portfolio and remain in both bad and good times. However, investors who are not afraid to risk often engage in stock trading. Stock trading involves selling and buying stocks regularly while timing the market. 

The critical objective of stock traders is to exploit short-term market activities to dispose of stocks at a profit or purchase them at a low. Some stock traders trade during the day while others are active traders meaning they place numerous trades per month. 

Stock trading investors research extensively, often spending many hours each day to read more about US stocks (米国株) and pursue the market. Such traders leverage technical stock analysis and tools to determine stock movement and find trading trends and opportunities. Some brokers offer stock trading information like charting tools, stock research, and analyst reports. 

The Stock Market Basics

Often, the stock market is said to be either down or up, based on one of the core market indexes. A market index monitors the performance of a collection of stocks which illustrates a specific market section like retail companies or technology or the entire market. 

Common phrases in the stock market include the Dow Jones Industrial Average, Nasdaq Composite, and the S&P 500. Often, these terms are used as mediators for the overall market performance. 

Investors leverage indexes to gauge the efficiency of their portfolios or sometimes to instruct their stock trading decisions. Traders can invest in a whole index via exchange-traded funds and index funds, or EFTs that trace a particular market sector or index. 

Bear Markets Vs. Bull Markets

A bear market indicates falling stock prices, while bull markets signal the beginning of substantial economic patterns. A bull market indicates investors’ confidence and economic growth. 

On the other hand, a bear market indicates that investors are withdrawing, suggesting a possible drop in the economy. Worth noting is that the average bull market lasts longer than the average bear market, explaining why investing in stocks is an excellent method of growing your money. 

Investing in Stocks

Many studies suggest that stocks generate superior investment returns than any other asset class. Stock returns come from dividends and capital gains. The latter occurs when traders sell a stock at a price higher than the purchasing price. 

A dividend is the profit share that a company allocates to its shareholders. Dividends play a critical role in stock returns. Studies show that dividends have generated approximately a third of the overall equity return. Capital gains, on the other hand, have produced two-thirds. 

Stock Market Correction Vs. Crash

A stock market correction takes place when the stock market falls by 10% or more. A stock market crash is a sharp unforeseen decline in stock prices. While crashes can suggest a bear market, a significant percentage of bull markets are longer lasting than bear markets. As a result, stock markets often increase in value over time. 

If you are concerned about a crash, consider focusing on the long term. Once the stock market drops, your portfolio also drops and watching such a scenario can be a difficult task, mainly because there is nothing much you can do. 


To earn rewards from the stock market as a beginner, identify an investing strategy that works best for you. Stick to your strategy regardless of the market conditions.