The stock market is the network of exchanges, trading venues and financial institutions through which investors buy and sell shares in publicly listed companies. It connects companies seeking capital with investors willing to provide it, while allowing existing shareholders to trade their investments with other market participants.
For many people, the stock market can seem abstract. Prices move every second, financial news is full of indices and tickers and millions of transactions take place without buyers and sellers ever meeting.
But the basic idea is relatively simple.
A company can divide its ownership into shares. Investors can buy those shares. Once the shares are listed on a stock exchange, they can usually be bought and sold between investors at prices determined by supply and demand.
Understanding how that process works is one of the foundations of investing.
A company can sell shares to investors to raise money for expansion, acquisitions, research or other corporate purposes.
After a company is listed, investors can buy and sell its shares through exchanges and other trading venues.
Share prices change as buyers and sellers react to company results, economic data, interest rates, expectations and market sentiment.
What is a stock?
A stock, also called a share or equity, represents an ownership interest in a company.
If a company has 100 million shares outstanding and you own 1'000 of them, you own a very small fraction of that business.
That ownership can come with certain rights, depending on the type of share. These may include voting rights at shareholder meetings and the right to receive dividends if the company decides to distribute part of its profits.
Owning a share does not mean that you directly own a specific factory, office or bank account belonging to the company. You own an equity interest in the company as a whole.
The value of that interest can rise or fall.
If investors become more optimistic about a company's future earnings, demand for its shares may increase and the price may rise. If expectations deteriorate, the opposite can happen.
What is the stock market?
The stock market is not one single physical place.
It is a broad system made up of:
- stock exchanges
- electronic trading venues
- brokers and banks
- market makers and liquidity providers
- clearing and settlement infrastructure
- listed companies
- institutional and private investors
- regulators and market supervisors
Major exchanges include SIX Swiss Exchange in Switzerland, the New York Stock Exchange and Nasdaq in the United States and many others around the world.
Each exchange has its own listing requirements, trading rules and market structure.
From an investor's perspective, however, the process is usually much simpler: you place an order through a broker or trading platform and the order is routed to an appropriate market.
Why do companies issue shares?
Companies need capital to grow.
A business may want to:
- expand into new countries
- build factories
- invest in technology
- hire employees
- acquire another company
- repay debt
- finance research and development
One way to raise that capital is to borrow money. Another is to sell part of the company to investors by issuing shares.
When a private company first offers shares to the public, this is commonly known as an initial public offering, or IPO.
The shares are sold in what is called the primary market because the company itself is raising capital from investors.
Once those shares begin trading between investors, they enter the secondary market.
That distinction is important.
In the primary market, money raised from newly issued shares can go to the company or existing selling shareholders depending on the transaction. In the secondary market, one investor generally buys shares from another investor. The company does not receive the purchase price from each later trade.
How does buying a stock actually work?
Suppose you decide to buy 10 shares of a listed company.
You log in to your brokerage account, search for the company and enter an order.
Your broker then sends that order to a trading venue.
If a seller is willing to sell at a price that matches your order conditions, the transaction can be executed.
The process may take only a fraction of a second, but several systems are involved behind the scenes.
A simplified version looks like this:
Investor → Broker → Exchange or trading venue → Matching engine → Trade execution → Clearing and settlement
To learn more about accessing and trading shares across international markets, explore stocks at Swissquote.
The investor sees a buy or sell transaction. The infrastructure behind it makes sure that the buyer receives the shares and the seller receives the corresponding cash, subject to the applicable market rules and settlement process.
What determines a stock price?
At the most basic level, a stock price is determined by supply and demand.
If more investors want to buy a share at current prices than sell it, buyers may need to offer a higher price to attract sellers.
If more investors want to sell than buy, sellers may need to accept a lower price.
But what changes supply and demand?
Many factors can matter, including:
- company earnings
- revenue growth
- profit margins
- new products
- management decisions
- acquisitions
- competition
- interest rates
- inflation
- economic growth
- regulation
- political developments
- investor expectations
- market sentiment
A stock price therefore reflects not only what investors think a company is worth today, but what they expect it may be worth in the future.
This is why a company can report rising profits and still see its share price fall. If investors expected even stronger results, the actual announcement may disappoint the market.
Similarly, a company can report weak current results while its share price rises if investors believe conditions will improve.
What are the bid and ask prices?
When you look at a stock quote, you may see two prices rather than one.
The bid is the highest price a buyer is currently willing to pay.
The ask, or offer, is the lowest price a seller is currently willing to accept.
The difference between them is called the bid-ask spread.
For example:
| Quote | Price |
|---|---|
| Bid | CHF 99.90 |
| Ask | CHF 100.00 |
| Spread | CHF 0.10 |
If you buy immediately, you may trade at or near the ask price. If you sell immediately, you may trade at or near the bid price, depending on available liquidity and order conditions.
Highly liquid shares often have relatively narrow spreads because many buyers and sellers are active. Less liquid shares may have wider spreads.
The spread is one of the practical costs investors should understand when trading.
What is an order book?
An order book is a list of buy and sell orders waiting to be executed.
On the buy side, investors state how many shares they want and the maximum price they are willing to pay.
On the sell side, investors state how many shares they want to sell and the minimum price they are willing to accept.
A simplified order book might look like this:
| Buyers | Price | Sellers |
|---|---|---|
| 300 shares | CHF 99.90 | |
| 500 shares | CHF 99.80 | |
| CHF 100.00 | 200 shares | |
| CHF 100.10 | 450 shares |
The exchange's matching system continuously compares these orders.
When compatible orders meet, a trade can occur.
This mechanism is one reason stock prices can move quickly. New information can cause investors to change the prices at which they are willing to buy or sell.
What is the difference between a market order and a limit order?
Two of the most common order types are market orders and limit orders.
What is a market order?
A market order instructs the broker to buy or sell at the best prices currently available.
Its main advantage is speed of execution.
Its disadvantage is that the final price is not guaranteed. In a fast-moving or illiquid market, the execution price may differ from the price you saw when you submitted the order.
What is a limit order?
A limit order specifies the maximum price you are willing to pay when buying or the minimum price you are willing to accept when selling.
For example, if a share is trading around CHF 100, you might place a buy limit order at CHF 98.
The order can only execute at CHF 98 or lower.
The trade-off is that the order may never execute if the market does not reach your chosen price.
| Order type | Main benefit | Main limitation |
|---|---|---|
| Market order | Prioritises execution | Final price can vary |
| Limit order | Gives more control over price | Execution is not guaranteed |
Other order types exist and availability depends on the market and broker.
What are stock exchanges for?
A stock exchange provides an organised marketplace for trading securities.
Its role typically includes:
- setting listing requirements
- organising trading
- publishing market information
- applying trading rules
- supporting transparent price formation
- coordinating with clearing and settlement infrastructure
For investors, exchanges create a standardised environment where buyers and sellers can interact.
They also contribute to price discovery.
Price discovery is the process through which the market continuously determines what investors are willing to pay for a security.
Every new buy order, sell order and completed transaction contributes information about the current market price.
What does market capitalisation mean?
Market capitalisation, or market cap, is the total market value of a company's outstanding shares.
The basic calculation is:
Share price × shares outstanding = market capitalisation
Suppose a company has 100 million shares outstanding and each share trades at CHF 50.
Its market capitalisation would be:
CHF 50 × 100 million = CHF 5 billion
Market capitalisation is commonly used to compare the size of listed companies.
Companies are often described as large-cap, mid-cap or small-cap, although the exact thresholds vary between markets and index providers.
Market cap should not be confused with the amount of cash a company has or with its revenue.
It is the market value investors currently assign to the company's equity.
What are stock market indices?
A stock market index tracks the performance of a group of securities according to a defined methodology.
Examples include indices representing:
- a particular country
- a region
- large companies
- smaller companies
- a sector
- a specific investment theme
An index allows investors to answer questions such as:
How is the Swiss equity market performing?
or:
How are large US companies performing overall?
Indices can be weighted in different ways. Some give greater weight to larger companies, while others use different methodologies.
An index itself is a measurement rather than a share you can buy directly. Investors can gain exposure to an index through products such as ETFs or index funds.
Our guide to market indices explains how they are constructed and how investors use them.
How do investors make money from stocks?
There are two main potential sources of return.
1. Capital gains
If you buy a share for CHF 80 and later sell it for CHF 100, you have a capital gain of CHF 20 per share before considering fees and taxes.
If the price falls to CHF 60 and you sell, you realise a loss of CHF 20 per share.
2. Dividends
Some companies distribute part of their profits to shareholders through dividends.
If a company pays a dividend of CHF 2 per share and you own 100 shares, the gross dividend would be CHF 200 before applicable taxes.
Dividends are not guaranteed.
A company can reduce, suspend or cancel a dividend.
The total return from owning a stock therefore depends on both changes in the share price and any distributions received.
Why do stock prices move so much?
Stocks represent claims on businesses whose future profits are uncertain.
Investors continuously reassess those future profits as new information arrives.
A small change in expectations can have a large effect on a stock's estimated value, particularly when investors are focused on growth many years into the future.
Prices can also move because of changes in the broader market rather than company-specific news.
For example:
- interest rates may rise
- economic growth may slow
- an entire sector may fall out of favour
- investors may reduce risk across their portfolios
- geopolitical events may increase uncertainty
This is why a good company and a good stock investment are not always the same thing.
A strong company can still be a poor investment if the price paid already assumes extremely optimistic future results.
Valuation therefore matters.
Our article on how to value a company using the price-to-earnings ratio introduces one of the most widely used valuation measures.
What is volatility?
Volatility describes how much and how quickly an asset's price changes.
A share that moves between CHF 98 and CHF 102 over several months is less volatile than one that moves between CHF 60 and CHF 140 over the same period.
Volatility is not the same as permanent loss, but large price swings can create significant risk.
An investor who needs to sell during a market decline may realise losses that a longer-term investor might have been able to wait through.
This is one reason time horizon matters.
Money needed soon should generally not be exposed to the same degree of market risk as money intended for goals many years away.
What is diversification?
Diversification means spreading investments across different holdings rather than relying heavily on one company, sector or market.
Owning shares in five technology companies may look diversified because you own five stocks, but they may still react to many of the same risks.
Broader diversification may involve exposure across:
- companies
- sectors
- countries
- currencies
- asset classes
Diversification cannot prevent losses and does not guarantee positive returns.
Its purpose is to reduce dependence on the outcome of any single investment or risk factor.
For many investors, diversified funds and ETFs can provide exposure to many securities through one investment vehicle. Our article What's so great about ETFs? explains how ETFs work and the risks investors should consider.
What is the difference between investing and trading?
The distinction is mainly about objective, time horizon and decision-making process.
Investing often focuses on owning assets for longer periods in the expectation that companies, economies or markets may grow over time.
Trading generally involves shorter-term decisions based on price movements, market conditions, technical signals or specific events.
Neither approach removes risk.
Trading more frequently can also increase the importance of transaction costs, spreads, timing and execution.
The right approach depends on the investor's objectives, knowledge, risk tolerance and time horizon.
How can a beginner approach the stock market?
A useful starting sequence is:
- Define the goal. Know why you are investing and when you may need the money.
- Build a financial buffer. Avoid relying on investments for unexpected short-term expenses.
- Understand the risk. Share prices can fall substantially and losses are possible.
- Choose an appropriate level of diversification. Avoid making one company responsible for the outcome of your entire portfolio.
- Understand what you are buying. Know the business, fund or index behind the investment.
- Pay attention to costs. Brokerage fees, spreads, product fees and taxes can affect returns.
- Think in years, not headlines. Short-term market noise can be very different from long-term investment outcomes.
- Review periodically. Your goals, income and risk capacity can change.
If you are new to investing, our guide How to start investing in Switzerland: 5 simple steps for long-term success provides a broader framework.
Can you lose all your money in the stock market?
Yes, it is possible to lose a substantial amount of money in stocks and an individual company's shares can become worthless if the company fails.
That does not mean every stock-market investment has the same level of risk.
Risk varies according to factors such as:
- the company
- valuation
- financial strength
- diversification
- sector
- country
- currency exposure
- time horizon
- investment strategy
A diversified portfolio can reduce company-specific risk, but it can still fall significantly when the broader market declines.
Leverage, derivatives and concentrated positions can increase risk further.
- The objective is therefore not to avoid every market decline, but to build a portfolio that is resilient enough to withstand periods of volatility over time.
- Understanding the risks, spreading your investments and investing with an appropriate time horizon can make the stock market a much more manageable proposition.
Does the stock market always go up over the long term?
No market rises in a straight line and positive returns are never guaranteed.
Major equity markets have historically experienced long periods of growth, but they have also experienced crashes, recessions and extended periods of weak or negative returns.
Historical performance can help investors understand how markets have behaved in the past, but it cannot tell them exactly what will happen next.
The more useful lesson is that the stock market is designed to price uncertain future outcomes.
That uncertainty is one reason equities can offer return potential, but it is also the reason investors can lose money.
The stock market is essentially a system for connecting companies and investors.
Companies can raise capital by issuing shares. Investors can buy ownership interests in those companies. Once shares are listed, buyers and sellers meet through exchanges and trading venues, where prices continuously adjust as expectations change.
Behind every price on a screen are simple economic questions:
How much is this business worth?
What might it earn in the future?
What price are buyers willing to pay?
What price are sellers willing to accept?
Understanding those mechanics does not make markets predictable.
But it does make them less mysterious.
Before choosing a stock, ETF or investment strategy, start with the foundations: understand what you are buying, why you are buying it, how long you can stay invested and how much risk you can afford to take.
Frequently asked questions
What is the stock market in simple terms?
The stock market is the system through which investors buy and sell shares in publicly listed companies. Trading takes place through stock exchanges and other regulated trading venues, usually via a broker or bank.
How does the stock market work for beginners?
An investor places an order through a broker. The order is sent to a trading venue where it can be matched with a compatible order from another market participant. Once executed, the investor becomes the owner of the shares purchased.
What makes stock prices go up and down?
Stock prices change according to supply and demand. Company earnings, economic conditions, interest rates, news, investor expectations and market sentiment can all influence how much buyers are willing to pay and sellers are willing to accept.
What is the difference between a stock and a share?
The terms are often used interchangeably. A share usually refers to one unit of ownership in a specific company, while stock can refer more broadly to equity ownership or shares as an asset class.
What is a stock market index?
A stock market index measures the performance of a defined group of securities. It can represent a country, region, sector or market segment. Investors can gain exposure to many indices through ETFs or index funds.
Is investing in the stock market risky?
Yes. Share prices can fall and investors may lose some or all of the capital invested. Risk depends on the securities held, diversification, investment horizon, valuation and other factors. Diversification can reduce some risks but cannot eliminate market losses.
The content in this article is provided for educational and marketing purposes only. It does not constitute investment advice or financial recommendations.
