What, exactly, is the stock market? How does a stock market operate?
In this day and age, there are still people who have heard about the stock market but are really clueless on the many things connected with it. The following are some definitions and short explanations about the stock market and its various features.
Stock market
Also known as the equity market, the stock market is one of the many vital areas of a country’s economy. Its main function is to provide companies access to capital and investors.
The investors, on the other hand, want a slice of ownership of a company with an eye for potential gains hinged on the future performance of the company.
Stocks and ownership
Basically, a stock is a share in the ownership of a company, and a claim to a part of the company’s assets and earnings. Consequently, the more stocks (or shares or equity) you have, the bigger your ownership stake in the company becomes.
Having some of the company’s stocks means you are one of the many owners (or shareholders) of the company. Technically, you own a very small piece of everything the company owns including its furniture and equipments, its contracts and also its debts.
As owner, you are entitled to your share of the company’s earnings. Some types of stocks also entitle you to some voting rights.
Stock exchanges
These are the entities (corporations or organizations) where the stocks are listed and traded. Their business is to bring buyers and sellers of stocks together, thus providing a marketplace (real and virtual) where real-time trading information is exchanged.
Stock market participants can be small individual stock investors or large hedge fund traders and their orders are taken care of by professional brokers who execute them.
Some exchanges are physical locations with trading floors where bids and offers are entered verbally. Other exchanges are virtual network of computers where trading is done electronically from traders at their computer terminals.
Trading
Trading is done when a potential buyer bids for a specific price for a stock and a potential seller asks a specific price for the stock.
Buying or selling at market means there is acceptance to the bid price or ask price for a stock. When there is a match between bid and ask prices, a sale takes place.
This is usually on a first-come-first-served basis, which works fine because sometimes there are multiple bidders or askers for the same price.
In the United States, all stock market trading includes all those listed in such exchanges as the NYSC, NASDAQ and AMEX, including the other regional exchanges like the OTCBB, and Pink Sheets. Other countries have their own stock exchanges.
Types of exchanges
The trading at the New York Stock Exchange is a physical one, the trading being done on a face to face basis on the trading floor. (This is sometimes called “listed” exchange because only stocks listed with the exchange may be traded.)
At the NASDAQ, all the virtual trading is done over a computer network. The trading procedure is the same as that at the NYSE. The seller gives out the asking price and the buyer provides the bidding price, after which both buyers and sellers are matched electronically.
That, in a nut shell, is how a stock market operates.
Through the years, the stock market has been one of the most viable business ventures one could get into. This is because the nature of the business itself doesn’t take too much one's time if he or she already knows the ways to get the investment rolling. It is also one of the easiest means of making the value of your money into double, only if you know how to handle it properly.
Getting started
The stock market is all about selling. It’s all about testing your trading skills and how far you could push your limits. If you are among those who would want to take a risk and join the exciting, complicated world of the stock market, here are some keys to help you get started:
- Arm yourself with knowledge. You can get enough information on stock market by enrolling to specific courses that focus on it. You can also read a lot of books and other reference materials that talk about it. But the best thing would be is to visit various websites that offer free and seemingly limitless information on it. If you want more first-hand information, by try asking people you know about their experiences in the stock market.
- Always persevere and work hard. This formula always works once you get into stock market. Because if you don’t give up and you keep on working hard to achieve your goals, a lot of opportunities will be opened up to you. Persevering and working hard will also keep your feet firmly planted on the ground.
- Look forward to a healthy competition so you would not be complacent. This could be done by keeping yourself up-to-date through always monitoring the current trends in stock market to keep your knowledge up-to-date. This can be done by constantly monitoring the stock market through magazines and news reports in the industry.
- Re-assess yourself and know where you stand. This is very important before you get into stock market because it indicates your personal assessment on your current status in the market. Knowing where you stand will also help you determine if you are still in the right path of success.
- Devise and plot your strategies. Although strategies don’t always work in the stock market, it is best that you have your own strategy to start with. If you are able to come up with your own strategy, it means that you are ready to deal with more difficulties ahead of you.
- Always reflect on your goals and realize them. Just like in any business, having a goal is a very important key to achieve success in the stock market. If you know your goals, then you will know if you are still faring well or you need to re-assess all your short and long-term goals.
- Don't give up when your fail. Venturing in the stock market is not always about being success. Keep in mind that there will always be windows for failures along the way and accept that this is part of the industry's nature.
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