What is the Stock Market & How Does It Work?

What Is the Stock Market & How Does It Work?

By Matthew Frankel, CFP – Updated Aug 19, 2025 at 5:05 PM | Fact-checked by Parker Hicks

Key Points

Stocks signify ownership in publicly traded firms, accessible via buying shares.
Stock market operations are fuelled by supply and demand, determining prices.
Market makers enhance liquidity, facilitating instant buy/sell during trading hours.

It's fairly common knowledge that investing in stocks can be a great way to create wealth over time. While they have their own pros and cons, stocks have the potential to outperform almost every other major asset class over time.

But does the stock market actually work? Do you know how to buy and sell stocks? What even is a stock?

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An infographic defining and explaining the differences between a stock market, stock exchange and stock index. — Image source: The Motley Fool.

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Financial Securities

A tradeable asset that holds monetary value.

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Bid and Ask

Bid and ask are two points of a price quote. Bid is the price investors will pay for an asset, while ask is the price they’ll sell it for.

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"The Market is Up!"

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The bottom line on stock markets

Knowing the basics of how stock markets work can help make you a better investor and open the door to potential long-term wealth.

Without understanding why your investments can be bought and sold at a moment's notice, the stock market's auction-like system, or why prices fluctuate, you'll never become the wise investor we aim to make everyone.

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst and personal finance expert covering financial stocks, REITs, SPACs, and personal finance. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, The National Desk, and other TV networks and publications for his financial, stock market, and investing expertise.

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@MattFrankelCFP

Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.