How does the Stock Market Work for Beginners?

Ever hear people talk about the stock market and feel like they’re speaking a whole other language? You’re not alone. A lot of people want to understand it but just don’t know where to start.

Good news — we’re here to help break it all down in a way that’s easy to understand. Once you get the basics, investing won’t seem so intimidating.

Table of Contents

So, What Are Stocks?

Let’s start simple. Stocks (also called equities) are pieces of ownership in a company. When you buy a stock, you’re buying a small part of that company. These pieces are called shares. The more shares you own, the bigger your slice of the company.

Companies sell stocks to raise money so they can grow. There are two main types:

Common stocks: Give you voting rights and a share in the company’s success.
Preferred stocks: Usually don’t come with voting rights, but they offer more stable dividend payments.

What’s the Stock Market?

Think of the stock market as a giant meeting place where people buy and sell stocks. It’s made up of several stock exchanges, like:

NYSE (New York Stock Exchange)
NASDAQ
TSX (Toronto Stock Exchange)

Private companies join the market through something called an IPO (Initial Public Offering) — that’s when they sell shares to the public for the first time. From there, those shares can be traded daily based on supply and demand, which sets the price.

Also Read: Which Tech Stocks are Poised for Growth in the Next Year?

Stock Market vs Stock Exchange — What’s the Difference?

People often mix these two up, but here’s the difference:

The stock market is the whole system where stocks are bought and sold.
A stock exchange is one part of that system — a specific place where those trades happen.

Examples of stock exchanges include NYSE, NASDAQ, and TSX.

How the Stock Market Works

There are two main parts of the market:

Primary market: Where new stocks are sold for the first time (via IPO).
Secondary market: Where people trade existing stocks — this is what most people mean when they talk about the stock market.

Prices go up and down based on supply and demand. If more people want a stock than there are people selling it, the price goes up. If more people are selling than buying, the price goes down. It’s that simple.

Over time, a company’s performance usually influences the demand for its stock.

Ways to Invest

There are two main styles:

Day trading: Buying and selling the same stock in one day to make quick profits from small price changes.
Long-term investing: Buying and holding stocks for months or years to benefit from a company’s long-term growth.

Why Does the Stock Market Matter?

The stock market serves two big purposes:

It helps companies raise money.
It gives investors a chance to earn profits.

Investors can make money in two ways:

Dividends: Regular payments made by some companies.
Capital appreciation: When the stock price goes up over time.

Also Read: What are the Best Platforms for Options Trading?

Bull vs Bear Markets

You’ve probably heard of bull and bear markets. Here’s what they mean:

Bull market: Stock prices are rising.
Bear market: Stock prices are falling.

Markets go through cycles, but bull markets usually last longer than bear markets.

There are also market indices that track the overall health of the market. Some of the popular ones are:

TSX Composite
Dow Jones
S&P 500
NASDAQ Composite

Trading Hours

Most major stock markets are open Monday to Friday, 9:30 a.m. to 4:00 p.m. ET. They’re closed on holidays like Labour Day. While you can place trades after hours, prices can be more volatile during those times.

What’s a Brokerage?

A brokerage is a middleman that helps you buy and sell stocks. You can place trades by phone, online, or through an app.

There are two types:

Full-service brokers: Offer advice, planning, and more personalized services — but they charge higher fees.
Discount brokers: Let you trade yourself using online tools. They’re cheaper and great for self-directed investors.

For example, with TD Direct Investing, you can trade online, use research tools, and possibly save on fees if you meet certain criteria.

Why Should You Invest?

The biggest reason? To grow your money over time.
When you invest, you also help companies expand and support the economy. Plus, it’s a great way to boost your financial knowledge.

Yes, there are risks. But with the right research and strategy, investing can be a smart move.

Also Read: What is Momentum Investing and is it effective?

Getting Started in Canada

Ready to dive in? First, decide how you want to invest:

Do-it-yourself using a platform like TD Direct Investing.
With the help of an advisor who can guide you through your options.

Whichever path you choose, the more you know, the better decisions you’ll make.