Reference to the stock or equity market is made practically every time you talk about investment. In this article, we have provided a basic understanding of the stock market.
The stock market is where ‘shares’ of publicly held companies are issued and traded. It provides companies with access to public capital in return for a share of ownership. An investor buys a share at an agreed price and maintains the same till the value increases, and then sells it to another buyer, to make a profit. Share prices fluctuate on the basis of the performance and debt of a company, and therefore, these investments are considered risky.
The shares are listed on a dedicated stock exchange. It is an entity of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations, to a listing of stocks and securities together. The basic idea of a stock exchange is to generate a network of buyers and sellers of various companies, as well as a list of stocks and securities. There are many national as well as regional exchanges all over the world.
The people who are a part and parcel of this fiscal market are the investors, mutual funds, banks, insurance companies, brokers, agents, and professionals at the stock exchange who execute the orders and differences. While some exchanges are physical locations, where traders enter verbal bids and offers at the same time, the others are virtual and function via the Internet. In the latter, the online trading transactions are handled electronically.
In the stock market, the actual trade is based on an auction paradigm. The potential investor bids a price for a stock, while the seller makes a specific value claim. When you buy or sell ‘at market’, it means that you accept the ‘ask price’ quoted. Most sales take place on the first-come-first-serve basis, especially if there are multiple bidders or sellers at a given price. The purpose of the market is to facilitate investing via exchange of securities. It is also responsible for providing real-time trading information and facilitating price enhancement.
There are specialists who handle the trade in a physical exchange. They ensure that only the stocks listed with the exchange are traded. The specialist matches ‘buy’ and ‘sell’ orders and even uses his own money or stock to close the difference after a predetermined span of time. The trade details are reported to the brokerage firms and subsequently, the investors. Today, computers play a very important role in program trading.
Today, all over the world, new and experienced investors are conducting stock research and tapping the potential of the stock exchange from the comfort of their home or office. There are many virtually listed exchanges like the National Association of Securities Dealers Automated Quotations or NASDAQ and the physical ones include the New York Stock Exchange or NYSE for example. Share trading can be completely handled on a specially designed computer network now.
The buyers and sellers are electronically matched, while bids are provided along with the ‘ask price’. The purchasing and selling of stock takes place through a systematic, electronic stock exchange. The fully-automated order matching process makes it very easy to indulge in profiting from the stock exchange, once you have understood how the market works, and the terms and abbreviations that are domain-specific.
There are a number of dedicated resources that help investors to identify and get over the temporary pull of prices, changes in fundamental factors like profits or dividends, market hypothesis, and even the tendency of the stock market to trend over longer time periods.