What is the Stock Market?

Unfamiliar with the stock market? Read our guide to better understand what the stock market is.
By · 28 Aug 2018
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28 Aug 2018
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What is the stock market?

The stock or share market is where shares of listed companies are purchased and sold. Share brokers place trades on behalf of their customers as buy or sell orders which are then matched up and settled by the exchange within two working days.

Who works in the stock market?

The stock market brings together stock brokers, traders, analysts, portfolio managers and investment bankers.

  • Stock brokers: brokers place buy and sell orders on behalf of their clients, acting as an intermediary between traders and the stock exchange
  • Traders: traders are people who buy and sell shares on the stock market, and include stock brokers
  • Analysts: stock analysts research and value stocks and write reports which are distributed to their clients to help them make decisions about what to invest in
  • Portfolio Managers: portfolio managers invest portfolios on behalf of their clients following a particular investment strategy
  • Investment Bankers: IB assist private companies who want to list on the exchange (also known as floating or going public via IPO) and with companies who involved in mergers and acquisitions

Stock market performance indicators

Stock market performance is usually measured by market indices. Capitalisation indices are usually used for equities and allow investors to gain insights into certain categories based on industry or market capitalisation. The S&P/ASX 200 is generally used as a measure of performance of listed companies and is recognised as the institutional investable benchmark in Australia.

Why is the stock market important?

The stock market is important to listed companies and investors for different reasons.  

Listing allows the company to raise funds to grow their company larger. Funding for activities using equity is less risky than debt which is why companies choose to use equity to fund part of their operations.

The stock market allows investors to provide this equity to companies in return for a higher rate of return than cash deposits. This allows investors to grow their wealth and meet their investment goals.

History of the stock market

The ASX was established on the 1 April 1987 as a result of a merger between six different independent stock exchanges that had been operating in the states’ capital cities. Those stock exchanges were established around the late-1800s when Australia was still a British colony. In 1861, Melbourne Stock Exchange was the first stock exchange to be established, followed by Sydney (1871), Hobart (1882), Brisbane (1884), Adelaide (1887) and Perth (1889).

Some well-known companies that listed in the 1880s that still exist today include AGL, which was the second stock to list on the Sydney Stock Exchange in 1871 and BHP which listed on the Melbourne Stock exchange in 1885.

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