What Are Stocks & How the Stock Market Works. A Basic Guide to Investing

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Watching the stock market can be an emotional rollercoaster, but it doesn’t have to be confusing. This clear, friendly guide explains what stocks are, how the stock market works, how you can invest, and how investors make money written for regular people, not finance majors.

Disclaimer: This article is general information only and not investment advice. Always do your own research or consult a licensed financial adviser for personal recommendations.

What is a stock (share)?

A stock (or share) is a slice of ownership in a company. When you buy a share, you become a part-owner of that business. If you own 100 shares of a large company like Apple, your percentage ownership is tiny but you still share in its gains (and losses).

What is the stock market?

The stock market (or stock exchange) is where shares of public companies are bought and sold. Think of it like an online marketplace like Amazon but for company ownership. Prices change constantly based on supply and demand, news, investor sentiment and even CEO’s behaviour on the internet.

Common exchanges: NYSE, NASDAQ, ASX, NZX, KLSE

Why do companies list on the stock market?

Companies sell shares to raise capital. An Initial Public Offering (IPO) lets a business sell a portion of ownership to the public to raise funds for growth, expansion, or paying down debt. In return, shareholders gain potential future returns and sometimes dividends.

How can you invest in the stock market?

1. Buy individual shares

Open an account with a broker (bank or online trading platform). Pick companies, place orders, and hold shares in your brokerage account.

Pros: control, potential large gains.
Cons: higher risk, needs time and research.

2. Invest via managed funds or ETFs

• Actively managed funds: professional managers pick stocks for you (higher fees).
• Passive funds / ETFs: track an index (cheaper, lower fees, often recommended for beginners).

Pros: diversification, less hands-on.
Cons: management fees (higher for active funds).

How do investors make money?

• Capital gains: sell a share for more than you paid.
• Dividends: some companies pay a portion of profits to shareholders.
• Long-term growth: compounding returns from index funds and dividend reinvestment.

Is now a good time to buy?

Depending on economic conditions, if you’re not confident picking individual companies consider these:

• Dollar-cost averaging into ETFs or index funds.
• Use managed funds if you prefer professionals to handle decisions.
• Always check valuations, company fundamentals, and your risk tolerance.

The stock market offers ways to grow wealth, but it comes with risks. For most beginners, low-cost ETFs or diversified managed funds are a simple, effective choice. If you prefer more control and learning, start with a small portion of your portfolio in individual shares and grow from there.