Are you confused by the stock market and what it all means? Keep reading to learn more about how the stock market works. 

To a beginner investor, the stock market can feel like an intimidating maze filled with unfamiliar terms and a lot of guesswork. Fortunately, despite all of the misconceptions, the stock market is actually easy to understand — as long as you can grasp the basics. In this article, we're explaining all about the stock market and how it works.

What Is the Stock Market?

The stock market is a platform that enables companies to raise money and investors to make money. When investors buy shares in a company, they are buying partial ownership of the company. Issuing shares is one way for companies to raise money and spread risk. As companies increase or decrease in value, the value of shares will rise or fall.

Investing in the stock market is one of the most effective ways of building wealth and saving for retirement. Fortunately, you don't have to pore over data for hours to find the best stock. Having some core fundamental knowledge can help you understand potential risks and how to mitigate them.

What Is A Primary Market?

Issuing shares helps companies raise money and spread risk. Companies who qualify and register their shares for sale can offer them in an exchange rather than finding investors one by one. This is known as an initial public offering (IPO), colloquially known as "going public." An initial public offering (IPO) creates a primary market for the company's shares.

What Is A Secondary Market?

The secondary market refers to the market in which investors buy and sell shares on the stock exchange, for example, the New York Stock Exchange (NYSE). Investors range from large entities such as commercial banks to individuals. The majority of stock exchanges trade from 9:30 am to 4 pm ET; this is also known as "trading hours."

For individuals who want to take part in the stock market, they can use a broker to act as a representative. There are multiple ways to do this, including hiring an individual or opening up a brokerage account with an established retail broker. With advances in the internet, finding an online brokerage has never been easier. In fact, you may be surprised how little funds you need to start investing. Of course, it's essential to look for low-fee options, as fees eat into your overall gains. 

Why Do Stock Prices Fluctuate?

Stock prices fluctuate according to a combination of factors, including;

• supply and demand
• investor confidence
• world events
• company profits

The stock price will rise if more buyers are trying to purchase than sellers are trying to sell. This is also true in reverse; for instance, if there are more sellers trying to hawk than demand from buyers, stock prices will lower.

With many different variables at play, it can be challenging to know which stocks are promising and which may be risky. It's crucial to have a healthy dose of skepticism. Be sure to research any "hot tips" you receive — as a general rule of thumb, if it sounds too good to be true, it likely is.

Investing Tips for Beginners

In general, the stock market provides higher returns over the long term than simply keeping the cash in the bank. The highest-yield savings accounts earn around 2% a year, compared to the stock market, which earns around 8% per year.

It's important to identify why you want to invest and what you want your investments to achieve. For example, if you're investing for your retirement, you'll likely want to focus on long-term opportunities. Alternatively, if you're risk-averse, you may decide that diversification is the best option. 

It's important to remember that stocks do carry some risk. For example, if the stocks you own become less valuable, it may affect your net worth — sometimes significantly. This is why it's essential to understand the volatility of the market. If you're investing long-term, volatility is likely to have little effect on your stocks. However, if you experience a downturn and "sell low" or only buy stocks "high," you'll find it harder to build your net worth and, in the worst case, may even face losses. 

If the thought of navigating the stock market seems overwhelming, don't worry! There are plenty of professionals who can help you start to build your investment portfolio. A qualified financial advisor can help you determine a strategic investment that meets your financial goals.