Want to learn the ropes of the stock market but don’t know where to start? Here is a stock market advice for dummies, learn how stocks are bought and sold. Read ahead…
A stock market is a private or public market for trading company stock and derivatives of company shares at an agreed price. Often when we see people glued to the stock and share numbers at the stock exchange, we wonder what is it that keeps these people hooked on to the stock market. If the stock market numbers look all Greek and Latin to you, then here are all the basics that you need to know.
How the Stock Market Works
You should know that every transaction in the stock exchange is carried out through licensed members who are referred to as brokers. If you wish to participate in stock trading, all you have to do is approach a broker but since most of the stock exchange brokers deal in very high volumes, they generally do not entertain small investors and hence have a network of sub-brokers who provide them with orders. The brokers buy and sell stocks on behalf of their clients and earn a commission from the transactions.
In case you don’t want a middleman in the stock transactions there are other options too. A stock exchange is a service that allows investors to access stocks all over the world, so you can buy and sell stocks without the need for a broker. There are also certain banks which allow you to set up your own stock portfolio and buy and sell stocks online using the funds in your bank account. Let us get you started on the basic terms used in the stock market jargon.
You can use terms like “equity share” and “share” interchangeably with the term stock, which represents the shares of ownership in a business / corporation. The number of shares issued by a company depend on the size of the share that a particular stock represents. It ensures that stockholders, that is people interested in buying shares, have a part in the company by owning a fraction of it. What you are entitled to basically are a company’s earnings and assets. Assets are everything that a company owns, be it machinery, buildings, electronic equipment and so on, where its earnings are what it makes through sales. The purpose of a company baring its stock in the stock market is to make money from the public, and return profit (dividend) gained, once the company makes successful returns.
Bear / Bull Market
There is a stock market situation known as supply and demand, where if a company doesn’t have enough shares to distribute and sell, it increases the price for these as a result. This is known as a bull market. The vice verse situation is when there are an increase in sellers and a fall in buyers, where the price drops. This situation is termed as a bear market.
IPO or Initial Public Offering, is when a company that is privately owned issues stock to people, making itself no longer privately but simultaneously owned by those who invest in the company. Depending on the future of the company and how one foresees its profit-making potential, the IPO after a long and tedious process, determines this. A company requires capital or money, to help it in different sectors of the business that need to be tended to. Whether it is to pay back old debts, upgrade machinery / equipment or to display itself in the market as a successful company to draw in investors and publicity, a company needs the capital to sustain itself in the long haul.
When an investor decides to buy stock, he gets in touch with a broker or requests to so on online. When you put in your request to either of these, the trade order is sent to the stock market trade floor or through a network that finds the most reasonably priced stock, or the cheapest possible one for you to invest in. While this happens, the representative of the seller is simultaneously looking for a buyer with the highest buying price, where your representative and the other’s come to an understanding after settling each other’s trade details.
The stock market is a bustling entity that not all of us have to necessarily understand in order to invest in a company. The best way to get involved is to have someone with investing knowledge help you out when you dip your feet in for the first time.