Stock market : What is it and how does it function?

Are you considering to start trading in the stock market or starting to invest in the stock market. Then  you have come to the right place. In this article you well get know what a stock market is , how the stock market functions and who the participants are. So let’s get starting.

What is a stock market?

A stock market is a market place where people and companies can buy or sell shares. The buying process works as follow. If you see a share that you find interesting then you can do two things. First you can buy the share for the current market price or you can try to buy it cheaper then the original market price by placing a bid. And if the bid gets accepted then deal has been concluded.

In the old days it was very difficult for you as a private consumer to access the stock market. If you wanted to place an order back then, you had to  have a broker that were sending his/her people to the market floor to execute your order.Now with the modern technology and internet it is very easy for a private trader like you and me to access the stock market. All we need  to have is a account at a on-line broker and we are able to execute our orders by ourselves. If you are interested in how to trade the stock market on-line then read this article: on-line share trading.

What is the function of a stock market?

The stock markets has two functions. The stock markets gives buyers and sellers the opportunity to trade shares with each other in a safe environment. And the second function is that it gives companies the possibility to get capital that they need for the their business. So the way of how the stock market works is as follow:

1. Company A is planning to expand their business. For expanding the business company A needs to do an investment for it. And since company A doesn’t have the capital for it, it decides that they want get the capital at the stock markets. In exchange for the capital company A gives a bit of ownership of the company away in the form of shares. There reason why many companies like company A wants to enlisted their stocks at the stock market is that they can get a huge amount of capital with out worrying of paying back. And of course they don’t have to pay interest rate.

2. Investors and traders can buy shares of the company that they like. And if they have stopped liking the company then they can sell the shares. The volume of those transaction depends on how popular the stock is. If the demand for the stock is big but the supply is small it most likely that the price for that share will increase and vice versa. The reason why there is many transaction in stock markets everyday is because of the huge amount of participants the stock market haves. And each participant has their strategy and vision of how that stock will develop in price. The market participant varies from small private investors , big investors such as banks , pension fund , hedge funds , institution and companies themselves (buying back their shares). So now you know what the stock markets is , how functions and who the participants are. With this basic understanding of the market, you can start trading.