Are you looking for a stock market definition before you begin investing? If so, you have come to the right place. The stock market presents a variety of opportunities to build passive income. However, more than half of all Americans don’t invest in stocks at all.

According to a 2019 survey by GOBankingRates, 55% of Americans have decided against investing in the stock market. There are a number of reasons why this is happening. And having a basic understanding of the stock market could go a long way toward turning those numbers around.

A stock market definition to live by

In-Depth Stock Market Definition

The thought of investing in stocks is obviously scary for a lot of people. The data and survey results tell the story. But it doesn’t have to be this way. It’s important to understand the market at-large and the benefits of compound interest.

So what is the most complete stock market definition? The stock market is a collection of exchanges and markets throughout the world where shares of publicly traded companies are actively bought, sold and issued.

It’s a place where individuals and institutional investors buy and sell shares in a public locale. However, the majority of stock trading now takes place electronically through online brokerages and marketplaces.

In general, the terms “stock market” and “stock exchange” are used interchangeably. And the leading exchanges in the United States include the New York Stock Exchange (NYSE), the Nasdaq and the Chicago Board Options Exchange (CBOE).

A company can go public through an initial public offering (IPO). Learn more about this process through our IPO guide. This step-by-step guide will enhance your stock market definition and ease your mind as a new investor.

What Are Stocks?

Stocks, also known as shares, represent ownership equity. Moreover, shareholders usually have voting rights within the company and a residual claim on corporate earnings through capital gains and dividends.

By buying stock, you now own a piece of the company and have a proportionate claim on its assets and earnings. The company’s assets include everything it owns. Its earnings are the amount of profits it generates each year.

Your percentage of ownership will depend on the amount of shares you buy in relation to the company’s total number of outstanding shares. For example, let’s say you own 100,000 shares of a specific company that has 10 million outstanding shares. In this case, you would have a 1% ownership in the company.

And you can’t discuss the stock market definition without including the benefits of compound interest. It’s one of your best friends as an investor. Historically, the market delivers yearly returns between 7% and 10% on average.

The compounding factor is the key to this process. If you build a steady contribution over a longer period of time, you will earn increasingly larger gains.

That may be pleasantly surprising to some, while others have been reaping the benefits for years. Visit our compound interest calculator to learn more. In comparison, a traditional savings account will usually only offer as much as 2% interest.

Investing in the Stock Market

If you have a retirement account with your employer, you most likely already invest in stocks through mutual funds. But there’s a lot to learn before you can feel more comfortable as an investor.

The Investment U e-letter provides invaluable market research that can benefit investors from all walks of life. It doesn’t matter whether you have never invested before or are a Wall Street veteran. Our team of experts has decades of experience recognizing trends and providing up-to-date stock analysis.

Don’t miss out on the opportunity to build wealth through passive income. Get informed today and use this stock market definition as a building block to a bright future of smart investments.