The stock market (or share market) is where shares of a company are purchased and sold. Each share is a small piece of ownership in the company (with stock originally sold as a means of bringing an influx of cash into the company). In Australia, these deals take place in the Australian Securities Exchange, or ASX. You can think of it similarly to a large-scale auction where share prices go up and down based on supply and demand.

Owning shares in a company means that you own a portion of that company, and therefore share in the company’s profits. However, investing in the share market means that you have to be willing to take on some risk. Not every company whose shares you own will realize a profit, and share prices can drop at any time. Still, the stock market is a preferred investment opportunity for many long-term and short-term investors.

One of the best points of share market investing is that risks can be minimized by diversifying a stock portfolio – hedging losses with some stocks by owning shares in many companies at once (natural fluctuations generally mean that while some stock prices are down, other share prices are up).

While stock market investing still caries more risk than some other types of investing, you have additional benefits, such as more favourable taxation and liquidity (the ability to cash out your shares easily and quickly).

In the past, share transactions had to take place on the stock exchange floor through brokers and traders. Now the Internet allows you to buy and sell company stocks in a simpler fashion. Investors generally work through a stock broker who handles the transactions. By trading shares digitally due to computers, stock brokers (or larger scale stock trading services) save time and money which is often passed on to their clients in the form of discounted trading fees.

The Web offers even more benefits to stock traders by allowing shares to be bought and sold nearly instantaneously, and giving traders the ability to manage their portfolios online from anywhere.

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