What Is Stock Market And How Does It Work

Stock Market

In simple terms, the stock market is where individuals can buy and sell stock shares of companies. Trying to analyze stock charts for the first time will just be confusing, however, as you understand how the whole market works, you will start seeing the bigger picture.

You can purchase public shares through a brokerage or through formal exchanges with the company. Nowadays, brokerages are extremely popular as everyone can buy shares they want, of course, if they have the funds.

It takes a lot of time and dedication to conquer the stock market. The best way to inform yourself about making sound decisions on the stock market is to search for a stock market update today and accumulate as much information as you possibly can. However, make sure you do this every day to stay current on the relevant updates.

If you are interested in finding out how the stock market works read below.

Why do companies issue shares?

55% of Americans actively participate in the stock market hoping to make a profit. But, before we answer the question of what the stock market is, we should elaborate on why companies issue shares. When a company goes public, this means that investors are able to purchase shares and own parts of it. The main reason why companies go public is to fund future projects and boost growth.

Shares are sold on the primary and secondary markets. In the primary market, companies issue new stocks and bonds for the very first time such as with an initial public offering (IPO).

The secondary market is basically the stock market. Here investors trade already issued shares with other fellow investors and aim to make a profit. 

Why do people buy shares?

We established why selling shares is beneficial for companies, but what can individuals expect from shares? There are many reasons why investors keep a close eye on the charts. There’s a lot of money to be made on the stock market if you play your cards right. For instance, if you purchase a stock and it goes up in value, that’s a profit. In addition to that, the earned profit is liquid as you can sell it almost instantly. Note that investing in assets can help you protect yourself from inflation.

On the other hand, investors can expect to earn a steady income with dividend payouts. Certain companies pay their shareholders quarterly or annually. This is great for individuals that are planning to set themself up for a peaceful retirement. However, bear in mind that not all stocks pay dividends. 

Stock Market

How the stock market works

It can be said that the stock market operates the same way as an auction house.  Buyers and sellers negotiate over prices and the best deal gets the rewards. To break things down, the company first decides it wants to go public in order to fund a certain project. Then it conducts an IPO and starts selling on the primary market. Once the shares are issued, investors are free to trade with them on the stock exchange.

The prices of shares can be affected by a lot of things. The most common factors include demand, public perception, recent company performance, and so on. Still, the stock market can be unpredictable and a lot of things can go wrong. So, it’s best to allocate only a part of your budget for investments.

Your performance on the stock market will largely depend on the information you possess. To ensure that you are always playing your cards right, read everything and develop a strategy before you invest. 

After that, find the right stockbroker and pay the asking price and closely monitor the value of the stock to see whether you will make a profit.

Final thoughts

The stock market is the place where fortunes can be made, but only if your strategy is sound. The way the market works is not as complex as one might think. Companies want to fund their project and grow their business operation. If you want to enter the market and make profits, you should first do thorough research and consider the volatility of that stock. After you determine the right stock to invest in, check the brokerage fees and pay the asking price.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.