What is the stock market? (with photos)

Current prices of available shares are listed on the stock exchange.

A stock market is a place where investors trade certificates that indicate partial ownership in companies for a set price. Through these transactions, companies can raise the initial capital needed for various aspects of the operation, and whoever buys the certificates is entitled to a portion of the assets and earnings of the business. While the value of certificates is not static and largely depends on public perception, the stock market remains a major means of investment and can be used as an indicator of overall economic health.

Stocks and shares

The New York Stock Exchange, located on Wall Street, is the largest in the world.

When companies need cash for various purposes, one option they have to raise capital is to divide ownership of their business into parts known as shares. They sell these shares and use the funds for tasks like developing products or buying buildings and equipment. To provide some proof of this division of ownership, they print certificates called shares, and the individuals who buy the certificates are called shareholders. Many people use the words “stocks” and “shares” – or similarly, “shareholder” and “shareholder” – interchangeably because of their close relationship, but the former term technically talks about certificates for all companies in a very general sense, and the last one usually connects to a single specific business.

A stock market is a place where investors buy, sell and trade stock certificates.

As partial owners of a company, shareholders are entitled to a percentage of the assets and earnings of the business. They usually expect the business they’ve invested in to make money, because then they’ll get a share of the profits – in fact, the basic objective is usually to buy stocks when the price is low and sell them when the value is high. With common stock, they also often have voting rights, typically getting a vote on company issues for every certificate they hold, and they often receive annual or quarterly reports that let them know how the company is doing financially. Preferred shares generally do not give voting rights, but many people like them because they give more profits and assets to shareholders and because they give priority to paying investors if the company goes bankrupt and liquidates what it owns.

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Market Purpose

Most stockbrokers work from an office or home, not on the floor of the stock exchange itself.

At the most basic level, the stock market provides an organized way for companies to connect with potential investors who might want to buy shares and become partial owners. When a corporation wants to sell shares in its company, it usually lists its shares on an exchange, which is an organization that hosts all activities related to buying and selling certificates. Typically, a company has to meet specific requirements to enter a stock exchange, so investors often find them less risky when compared to businesses that sell “over the counter” (OTC) or are not listed. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ) are commonly used stock exchanges in the United States.

Basic Sales Process

When individuals are interested in buying or selling stocks, they usually contact a stockbroker, which is a person who works in a company authorized to trade on stock exchanges. He relays the trade message to the floor of the correct exchange, usually receiving a commission for his service, and a company representative then completes the trade request. In the past, the trading floor was the physical place on the exchange where stockbrokers gathered to carry out buy and sell transactions, but today virtual and electronic trading sessions over the Internet or by telephone are much more common.

A common misconception is that a person needs a lot of money to go through this process. An individual needs to weigh the earning potential against the purchase fee, but many stocks are relatively cheap and offer good long-term returns, and because brokers receive a commission on every trade, they are usually willing to complete the transaction handling one at a time. very low number of certificates. In addition, many people pool their resources in what is called a mutual fund, which allows investors to work together to buy more shares or more expensive shares.

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stock value

The value of a share is initially determined when a company conducts an event called an Initial Public Offering (IPO), during which an investment bank uses various complex techniques and formulas to estimate how much the company is worth. The company then divides that valuation by the number of shares it wants to offer. After that, however, the value of stock certificates largely depends on public perception. According to the basic principles of supply and demand, when people think the company is not doing well, they usually don’t want to buy the stock certificates and the demand for them decreases, reducing their value. On the other hand, if the public thinks the business is successful and will have profits and assets to share, investors typically want to buy the shares, and the demand and value of the certificates increases.

bear and bull

If an individual believes the stock market is going to go down, he or she is referred to as “bearish” and usually buys stock very cautiously. People who think it will go up are called “bullish” and tend to invest more aggressively. Likewise, if the prices of stocks collectively tend to rise, the stock market is called a “bull market.” When stock prices as a group tend to fall, however, people refer to it as a “bear market.”

Connection to Financial Portfolio

Investors have many different options in terms of where to put their money, such as real estate properties, savings accounts, retirement funds, education savings plans and bonds. Stock certificates are simply one more choice. Traditionally, however, they have generally outperformed other investment areas, providing bigger payouts. For this reason, most financial experts consider them to be a vital part of a healthy investment portfolio, and they encourage people to participate regularly in the stock market.

Even though experts don’t always agree on what is the “best” way to buy or sell stock, they typically advise investors to buy stocks from many different companies. Doing this reduces the risk of extreme money loss, because if one business goes bankrupt, a person still can have plenty of other certificates that are valuable. Some individuals take this even further and assert that simply buying from more than one company is not quite enough — they say that people should make sure their stocks come from multiple industries, because shortages or disputes often affect entire sectors.

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Indicator of Economic Health

To some degree, the stock market can show how solid an economy is. In general, it drops when the economy is in trouble, because people tend to stop buying certificates when money is tight, focusing instead on necessities, such as food or mortgage payments. The drop also connects to the fact that many companies are intertwined, such as a computer business buying microprocessors from a manufacturer. When one business suffers, others often do, as well. Bullish markets, by contrast, usually indicate that individuals can afford to invest and make purchases again, or, considering the link to perception and supply and demand, that they simply believe the economy is recovering.

Brief History

The first public stock market is reported to be the Amsterdam Stock Exchange. This Dutch exchange was founded in the early 17th century and started the trend of buying and selling shares of company stock. There are now exchanges in a majority of developed countries. The largest ones are in the United States, the United Kingdom, Canada, Germany, China and Japan.

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