What Is The Stock Market?
The stock market refers to public markets that exist for issuing, buying, and selling stocks that trade on a stock exchange or over-the-counter. Stocks, also known as equities, represent fractional ownership in a company, and the stock market is a place where investors can buy and sell ownership of such investible assets. An efficiently functioning stock market is considered critical to economic development, as it gives companies the ability to quickly access capital from the public.
The stock market serves two very important purposes. The first is to provide capital to companies that they can use to fund and expand their businesses. If a company issues one million shares of stock that initially sell for $10 a share, then that provides the company with $10 million of capital that it can use to grow its business. By offering stock shares instead of borrowing the capital needed for expansion, the company avoids incurring debt and paying interest charges on that debt.
The secondary purpose the stock market serves is to give investors. Investors can profit from stock buying in one of two ways. Some stocks pay regular dividends (a given amount of money per share of stock someone owns). The other way investors can profit from buying stocks is by selling their stock for a profit if the stock price increases from their purchase price. For example, if an investor buys shares of a company’s stock at $10 a share and the price of the stock subsequently rises to $15 a share, the investor can then realize a 50% profit on their investment by selling their shares.
How does the stock market work?
The stock market brings together buyers and sellers, enabling them to exchange securities, which is the group name for all investment products like shares, bonds, investment trusts and exchange traded funds. Securities can be listed on a stock exchange, such as the Australian Securities Exchange (ASX) or the New York Stock Exchange (NYSE) in the US.
While the stock exchange used to be full of traders rushing around the trading floor, buying and selling securities from one another, today most of it is done electronically, although the NYSE still has a physical trading floor. Participants in the stock market range from individuals, known as retail investors, to big institutional investors, such as fund managers, insurance companies, banks and pension funds.
Buying and selling
Like any market, there are buyers and sellers and all buy and sell orders go through traders or brokers, whose job it is to match orders and get the best possible price for buyer and seller. If you place an order to buy shares in a company, for example, it will be fed into an electronic system that will try to find a match for your offer, i.e. someone willing to sell at the price that you have offered or lower. The price at which you want to buy the shares is known as the bid price, and the price at which a seller wants to sell the shares is known as the offer price. Stock exchanges provide liquidity to investors, because there are lots of market participants so anyone can generally buy and sell securities relatively quickly.
How To Invest In The Stock Market?
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