How the Stock Market Works
The stock market is an organised marketplace where buyers and sellers trade securities such as stocks, bonds and ETFs. Prices come purely from supply and demand: when there are more buyers than sellers, the price rises, and when there are more sellers, it falls. We explain how a company lists its shares, how a price forms in the order book, and why you always need a broker to trade.
What is the stock market — simply explained
The stock market (or stock exchange) is an organised marketplace where buyers and sellers trade securities — that is, stocks, bonds, ETFs and other financial products. It brings the two sides together under clear rules and full transparency, so that a fair price can form at any moment. Unlike a street market, nobody haggles in person: every order flows into an electronic system that automatically matches compatible buy and sell orders.
The mechanism behind it is simply supply and demand. When many investors want to buy a stock but few want to sell, its price rises. When more sellers come to the market, it falls. The stock market is therefore nothing more than a vast, continuously running price-discovery machine.
Primary market and secondary market
Stock trading happens on two levels. On the primary market, a company raises capital for the first time by issuing new shares — this is the initial public offering (IPO), or going public. On the secondary market, investors then trade already-existing shares among each other. This is the trading you see every day in the price tables.
Primary market vs. secondary market
| Feature | Primary market | Secondary market |
|---|---|---|
| What happens | company issues new shares | investors trade existing shares |
| Occasion | IPO (going public) | day-to-day trading |
| Who gets the money | the company | the selling investor |
| How often | one-off / rare | continuous, every trading day |
How does a price form? The order book
Every buy and sell order lands in the order book. On one side are the bids (the bid price) — the highest price a buyer is willing to pay. On the other side are the offers (the ask price) — the lowest price a seller is willing to accept. The gap between the two is called the spread.
A trade happens the moment the bid and ask meet. At exactly that point the current market price is set. When the balance shifts — say, good news attracts a wave of buyers — the price rises until enough sellers step in. In this way the price re-settles itself second by second.
Where does trading happen? The main venues
Major exchanges at a glance
| Exchange | Country | What it is |
|---|---|---|
| NYSE | USA | New York Stock Exchange, the world’s largest |
| Nasdaq | USA | fully electronic, technology-heavy |
| Xetra | Germany | electronic trading platform of Deutsche Börse |
| Frankfurt Exchange | Germany | classic floor and on-site trading |
Trading takes place only during fixed trading hours. Indices such as the S&P 500 or the DAX are not tradable products but a barometer: they measure the average performance of a basket of stocks. You take part in them, for example, through an ETF that tracks the index.
Who trades on the market — and how you take part
- Private investors: individuals who invest through a brokerage account.
- Institutional investors: funds, insurers and banks moving large volumes.
- Brokers: your access to the market — they route your order to the trading system.
- Market makers: continuously quote bid and ask prices and so provide liquidity.
As a private individual you have no direct access to the exchange — you always need a broker and a brokerage account. You place your order there (for example, “buy 10 shares at the market price”), the broker routes it to the trading system, and it is executed in the order book. This is normal and applies worldwide. Pay particular attention to order fees and the spread, because both eat into your returns.
FAQ — How the stock market works 2026
How does the stock market work, simply explained?
The stock market is an organised marketplace where buyers and sellers trade securities such as stocks, bonds and ETFs. Prices come purely from supply and demand: when there are more buyers than sellers, the price rises, and when there are more sellers, it falls. Buy and sell orders meet in the order book and are matched automatically as soon as a compatible price is found.
How is a stock price formed?
A stock price forms in the order book where supply and demand meet. Buyers state the highest price they are willing to pay with the bid price, while sellers state the lowest price they will accept with the ask price. When the two meet, a trade is executed and that price becomes the current market price. The gap between the bid and the ask is called the spread.
What is the difference between the primary and secondary market?
On the primary market a company raises capital by issuing new shares in an initial public offering (IPO), and the money flows to the company. On the secondary market, investors then trade already-existing shares among each other, and the money flows to the selling investor. The day-to-day trading you see in the price tables happens on the secondary market.
Can I trade directly on the stock exchange?
No, as a private investor you cannot trade directly on the exchange. You need a broker and a brokerage account as your access point: you place your buy or sell order there, and the broker routes it to the exchange’s trading system, where it is executed in the order book. Indices such as the S&P 500 or DAX cannot be bought directly — for that you use an ETF that tracks the index.