How the stock market works

A share of stock is a small slice of a company. The price you see is simply the last one where a buyer and a seller agreed.

Exchanges and brokers

An exchange is the marketplace where orders meet. The best known in the US are the New York Stock Exchange (NYSE) and Nasdaq. You reach them through a broker, the app or firm that takes your order. It may send the order to an exchange or to a market maker, a firm that stands ready to buy or sell all day.

Market hours

Session	Time (ET)	What to expect
Pre-market	Before 9:30 AM, start varies by broker	Few traders, wide spreads
Regular	9:30 AM to 4:00 PM	Most volume, tightest spreads
After-hours	4:00 PM to about 8:00 PM	Earnings reactions, thin trading

The market is closed on weekends and exchange holidays. A few brokers also offer overnight trading on some stocks, with even fewer traders. Many brokers accept only limit orders outside the regular session. A 7:00 AM price can look very different by 9:31, because few people were trading when it printed.

Bid, ask and the spread

The bid is the highest price a buyer is offering right now. The ask is the lowest price a seller will take. The spread is the gap.

Example: bid $50.00, ask $50.05. Buy 100 shares with a market order, which fills at the best price available, and you pay $5,005. Sell right away at the bid and you get $5,000. You lost $5, or 0.1%, without the stock moving.

A thinly traded stock might show bid $4.80, ask $5.00. That $0.20 spread is about 4% of the price, so the bid must climb about 4% before you break even. A limit order, where you set the most you will pay or the least you will accept, keeps you from overpaying. It may not fill, but it never fills at a worse price.

Market cap

Market capitalization is shares outstanding times share price. A company with 1 billion shares at $50 is worth $50 billion. Share price alone says nothing about size.

Common label	Rough market cap
Large-cap	Over $10 billion
Mid-cap	$2 billion to $10 billion
Small-cap	Under $2 billion

These cutoffs are conventions, not rules. Smaller companies tend to swing more.

What moves a price day to day

If buyers keep paying the ask, sellers raise their asks and the price climbs. If sellers keep hitting the bid, it falls. The usual reasons one side gets eager:

• Earnings. Each quarter a company reports results and often gives guidance, its forecast for the months ahead. Guidance can matter more than the results.
• Company news. A product launch, a lawsuit, an analyst upgrade, a big customer lost.
• The whole market. Interest rates, inflation and jobs reports move most stocks together.
• The sector. When one chip maker warns, others often fall with it.

Much of the daily movement is noise. Reacting to every wiggle is an easy way to lose money.

T+1 settlement

A trade shows in your account instantly, but the official swap of cash and shares happens one business day later. That is T+1, trade date plus one. Sell on Friday and the cash settles Monday, or Tuesday if Monday is a holiday.

This matters in a cash account, one with no borrowed money. If you buy with unsettled sale proceeds, then sell the new shares before that money settles, brokers call it a good faith violation. Repeat it and the broker can restrict the account.

Try this

Pick three stocks you know, one large and one small if you can. Check each quote near 9:45 AM and again after 4:00 PM. Write down the bid, the ask and the spread as a percentage of the price. Then work out each market cap from the shares outstanding on the quote page. No trade needed.