How Does the Stock Market Work?

The stock market is filled with millions of participants or actors around the world who meet in one central place to buy and sell parcels of a larger company. There are many pieces of a stock exchange; from the floor traders to your local neighborhood stockbroker, there are plenty of backend pieces of the stock market pie that you'll never be able to see.

The stock market has changed drastically since modernized computer trading has taken over most human involvement in trading stocks. The New York Stock Exchange had a humble beginning with just a few owners of local businesses trading shares of companies under a tree. Today, billions of people around the world buy and sell stock on a whim, mostly electronically, and often from the convenience of their own homes.

Below is a list of people and what they do to make the stock markets work. From bottom to top, these are the pieces of modern stock markets.

Investors

Without investors, there would be no stock market.  Thus, it's easy to say that these are the most important people to Wall Street. Investors and traders alike line up their orders, which are submitted to stock brokers for execution on the market. Buying and selling between investors makes the stock market move, but there are many more people who are needed to facilitate orders and make sure the market moves smoothly.

Stock Brokers

Stock brokers are people who work on behalf of a brokerage firm to give ordinary people access to the large stock markets of the world. Stock brokers are the people between the people; they let investors buy and sell stock while sending their orders to Wall Street and market makers who do the actual pairing of buyers and sellers. Stock brokers are licensed professionals who may or may not give advice to investors, depending on the level of service wanted by the investor. At the very bottom, stock brokers help generate buyers and sellers for the stock market, which may be thousands of miles away.

Market Makers

These people are really what makes a stock market work. On the New York Stock Exchange, humans still facilitate orders and match up buyers and sellers art various price points. On the NASDAQ, which is completely computer automated, computers line up buyers and sellers at an agreed price. This is also a very profitable profession for human market makers on the commodities and NY stock exchange because the difference, or the spread, is pure profit for the market maker.

Governing Body

In the United States, it is the SEC or the Securities Exchange Commission that makes sure that no one commits foul play on the markets. This governing body is responsible for laying down the legal guidelines and insuring that no one has an unfair advantage over others. The SEC has been highlighted for its great work to make the markets work as they should, but also takes criticism for rules it does or does not enforce.