At a certain point, many people move beyond the basics of saving for retirement. They start thinking about the question of how to build wealth.

For the entrepreneurship-minded, that can mean launching a business. For the more conservative, it often means buying properties they can rent, later sell, or pass on to heirs. The less risk-averse, though, often turn to stock market investing.

Most people have heard of the stock market. Yet, many would find themselves struggling to answer the questions:

"What is the stock market and how does it work?" If you're in that group, keep reading for a quick overview of what you need to know.

What Are Stocks?

As companies grow, they can hit a point where they need additional funding to fuel more expansion. Rather than borrow money from banks or seek funding from private investors, such as venture capital, they offer stock for sale. In essence, they split off a percentage of the company and let private investors buy an ownership stake.

What the investors actually buy are shares of the stock.

What Is the Stock Market?

The term stock market can give people the wrong idea because it's not one uniform thing. The stock market is actually made up of a collection of individual stock exchanges, such as the New York Stock Exchange, the Nasdaq Composite, and the Tokyo Stock Exchange.

These exchanges provide lists of companies with stock for sale, along with other relevant information like stock prices and the overall performance of the current stock market. These exchanges also handle the vast majority of stock transactions.

There are also more exchanges that most people realize. For example, ASX Limited is the major exchange for the Australian stock market. Most countries have several exchanges.

How Does the Stock Market Work?

While all of the trading happens on the exchanges themselves, the average investor has little or no direct contact with the exchanges. Instead, individual investors open a brokerage account.

Going back to the Australian example, Australian investors might open a brokerage account at www.monexsecurities.com.au/.

You use your brokerage account to place orders to buy or sell stock. The brokerage firm itself then buys or sells the stocks on the exchange for you.

If you want a lot of support, you'll get a full-service brokerage account. A broker will advise you and offer related services for a commission. If you prefer a DIY approach, you'll likely opt for a low-cost or no-cost account with an online brokerage firm.

What Is the Stock Market and How Does It Work...for You?

The questions of what is the stock market and how does it work are often secondary for new investors. The real question most people want an answer to is how will the stock market work for you.

With the right kinds of investments, the stock market typically outperforms most other investment options. That makes it ideal for wealth building, but it comes with substantial risks. For new investors, practice with a simulated paper trading account first to get a feel for the process.

Looking for more investing tips? Check out the posts in our ZENRUPTMONEY section.