What is the stock market? What businesses can be part of it?

The stock market is a marketplace - just like a supermarket - where customers can buy and sell shares of stock (representing partial ownership) in public companies. These companies are identified by their ticker symbol. For example, Microsoft is MSFT; Nokia is NOK. Brokers link potential buyers and sellers in this market. They work for a commission or flat fee no matter if the trade makes money or not - pretty good deal, huh? Any company that wishes to go public (by being listed on the stock exchange) may do so. However, these companies must meet certain requirements and follow special rules. These rules help the general public "trust" the information that is communicated by the company by providing public access and transparency about the company's operations. The rules are created and enforced by the Securities and Exchange Commission, often called the SEC.

The stock market is not necessarily a single market. In America there are two major markets - The New York Stock Exchange and the Nasdaq Exchange. However, there are smaller exchanges as well. These exchanges differ slightly in their expectations and selections of companies, but in general there is far more in common than different between these markets. Why do companies go public? Well, when business owners want to raise money, they usually do so in one of three ways

• use their own money (most owners do not have the necessary money available)
• take out a loan from a bank
• sell certificates that represent partial ownership of the company. These certificates are called shares.

Taking out a loan might be a good idea. But loans cost money (banks want interest after all!), and some companies are never able to repay the loan. They go bankrupt. Sometimes the owners of a company need money quickly. Issuing shares of stock for sale can provide this capital. This is especially true for small companies. The owner's personal assets are protected and the business is not in debt. But the owner no longer can keep all of the company's profits - the profits are now shared amongst all the shareholders.