The basic function of a stock market is to enable companies to raise money by selling shares in their ownership. A share is also known as stock or equity, and is essentially a small piece of ownership in a company. The price of a share can go up or down and it generally reflects what people think the prospects of that particular company are likely to be in the future.

Let’s suppose you are the owner of a record store and want to expand your business by opening more branches, but you don't have enough money to do this. Your company could borrow money, or, you could give away portions, or shares, of your company in return for the cash you need.

You could list your company on a stock exchange and this would mean information about its activities becomes public, and anyone can buy or sell its shares. If many people think your company will do well (based on your future expansion plans, for example) and they buy shares, this could cause your company's share price to rise.

There are many stock markets around the world, some of the most famous ones include the New York Stock Exchange and the London Stock Exchange.

Stock Market Index

A stock market index (plural indices) is a listing of stocks which have something in common and are traded on the same exchange. The FTSE 100, for example, is a list of the 100 largest companies (in terms of market capitalisation) which are traded on the London Stock Exchange.

The price of an index reflects the average of the share prices of the companies which make up the index. If the share prices of companies in an index go up or down, the value of the index itself can go up or down. Many indices are compiled by news or financial services firms and they are used to ‘gauge’ how the markets are performing.

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