Exchange Market

• Active and efficient stock trading must have a central place where buyers and sellers come to transact business. Stock exchanges (and now increasingly ECNs--electronic communications networks) have been performing this function by facilitating timely and efficient execution.
  
  

Differences of Opinion

• There are many ways to evaluate stocks and several profitable ways to trade them, but there is no absolute price or value that can be unequivocally assigned to a stock. Ultimately, the decision to buy or sell is based on investor opinion and outlook. A seller and a buyer agree upon the price for exactly opposite reasons: The seller believes the price is as high as it can get, while the buyer sees a bargain. If everyone had the same opinion, there would be no market and no trading.
  
  

Continuous Auction Market

• Stock prices are set through a continuous auction market where each buy-sell transaction constitutes an agreement between a buyer and seller, and previous transaction records serve only as a guide for setting new prices.
  
  

Regulation

• Stock trading can be possible only if all participants adhere to the same set of rules. Those rules are put in place and enforced by acts of Congress, various government bodies such as the Securities and Exchange Commission (SEC) and the Federal Reserve Board and the securities industry's self-regulating organizations, such as the Financial Industry Regulatory Authority (FINRA).
  
  

Profit Motive

• Stocks represent proportionate ownership in corporations, but stock trading is based on the profit motive--the expectation that changes in stock prices create profitable opportunities. Trading is based on stock price changes and is essentially speculation; investing is based on the expectation of future stock price increases, although the boundary between the two has been blurred. Ultimately, both are based on a greater fool theory: A trader or investor buys a stock from someone based on the expectation that he will be able to resell that stock to someone else at a higher price at some point in the future. If the buyer did not have that expectation, he would not buy the stock in the first place, because owning a stock that does not pay dividends provides no economic benefit to its owner unless it increases in price over time.