How the stock market works
The stock market works through buying and selling stocks, commodities, assets and company equity through individual investors and company investors with the same functionality as an auction. Furthermore, big international corporations such as Tesla or Apple sell shares of their company to investors to raise more capital for the company. This allows the company to expand and have more financial capital to use in the future to make the company and its assets more valuable, which in turn increases the price of the shares of the company.
There a many different stock exchanges involved in the stock market. These include: the London stock exchange (LSE), the American stock exchange (ASE), Indian stock exchange (ISE) etc. “Stock exchanges are secondary markets, where existing owners of shares can transact with potential buyers.”[2]
How investing in shares works
Share prices of companies fluctuate depending on the law of supply and demand, so the more shares that are purchased, the higher the price of that share will go. However, the less shares are bought due to negative news associated with said company, or the company is getting liquidised those shares go down rapidly. Furthermore, shareholder’s often gain substantial amounts of “returns that are superior to those from every other asset class”[3] this is done by holding the shares of that company for a certain amount of time, rather than the short-term holders (known as day traders) as they look to make quick profits from day-to-day trades instead.[4]
Share prices of companies fluctuate depending on the law of supply and demand, so the more shares that are purchased, the higher the price of that share will go. However, the less shares are bought due to the fact there is some negative news associated with said company, or the company is getting liquidised those shares go down rapidly. Furthermore, shareholder’s often gain substantial amounts of returns that are superior to those from every other asset class this is done by holding the shares of that company for a certain amount of time, rather than the short-term holders (known as day traders) as they look to make quick profits from day-to-day trades instead.
Definition of stocks
“A stock or share (also known as a company's "equity") is a financial instrument that represents ownership in a company or corporation and represents a proportionate claim on its assets (what it owns) and earnings (what it generates in profits). Stock ownership implies that the shareholder owns a slice of the company equal to the number of shares held as a proportion of the company's total outstanding shares. For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake in it. Most companies have outstanding shares that run into the millions or billions."[5]
[1] Adam Hayes, 'A Breakdown On How The Stock Market Works' (Investopedia, 2020) <https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp> accessed 15 March 2021.
[2] Desjardins. J, February 17,2016, ‘All of the World’s Stock Exchanges by Size’, Visual Capitalists, Date Accessed [13/03/2021]
[3] Adam Hayes, 'A Breakdown On How The Stock Market Works' (Investopedia, 2020) <https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp> accessed 15 March 2021. [4] Wei-Yu Kuo, Tse-Chun Lin, ‘Overconfident individual day traders: Evidence from the Taiwan futures market’, Journal of Banking & Finance, Volume 37, Issue 9,2013, [5] Adam Hayes, 2020), ‘How Does the Stock Market Work’, Investopedia
Comments