A stock market is a place where shares or stocks are bought and sold. The prices of these shares or stocks are decided by the buyers and sellers through brokers who operate on the floor of the exchange.

Some exchanges are physical where shares are traded on the trading floor. You would have seen pictures of traders yelling, waving, using hand signals to communicate with each other. The other type of exchange is of the virtual kind. It is a network of computers where trades are made electronically.


The stock market is a facilitator where buyers and sellers can meet to trade in shares.

The concept is the same as say Ebay or a farmers market. An understanding of the primary market and the secondary market is necessary for understanding stock markets. The primary market is where securities are created by way of an Initial Public Offer (IPO). It is the market where companies that are not traded on the exchange issue shares and/or bonds and other securities to the public for the first time.

These securities are required to be traded on a regular basis. Such trading is conducted in the secondary market, which is commonly referred to as the stock market.

The trading of a stock does not directly involve the company that issued the stock in the first place. The secondary can be further classified into the auction market and the dealer market. In an auction market, investors wishing to trade in securities will meet in one area and announce the prices at which they are ready to buy and sell.

The best example of an auction market is the New York Stock Exchange (NYSE). In the dealer market, investors are not required to wait to hear from other parties before a transaction can occur. In this market, stocks can be bought and sold to specialists who keep an inventory of stocks. These specialists will then attempt to find a suitable seller or buyer. Most bonds are traded in dealer markets. The NASDAQ too can be classified as a dealer market.

Related posts:

1. How does the stock market work?
2. World Stock Exchanges
3. Stock Market
4. Investment in stock exchange
5. The American Stock Exchange
6. Investment in the stock market
7. What is an IPO? Will it help to invest in stock market?
8. Binary Options – trading in the stock market has never been easier
9. Investing in the stock market for beginners
10. The Egyptian stock market reopens in fall