How the stock market works

Many words can be used to explain the stock market and how it works. But the long and short of it is that a stock market is a marketplace where trading in company shares or stock takes place.

Companies come to the stock market to sell their shares in order to raise money to invest in growing the business. Investors come to the stock market to buy and sell shares or stocks. Trading in the stock market is facilitated by entities called stock exchanges. In Kenya, the Nairobi Securities Exchange (NSE) does that work.

A stock exchange connects buyers and sellers in the stock market. It also organizes and regulates trading in stocks with the goal of protecting investors. The actual buying and selling of stocks on an exchange is done by stockbrokers.

Therefore, a broker acts as the middleman between buyers and sellers in the stock market. If you want to invest in a stock, you instructs the broker to buy it on your behalf.

Likewise, if you want to dispose of a stock, you instruct the broker to sell it on your behalf. A broker changes a fee for the service.