What is the stock market?

A stock market is a place where investors exchange certificates indicating partial ownership of companies for a fixed price. Through these transactions, companies can raise the initial capital needed for various aspects of the operation, and whoever acquires the certificates is entitled to a share of the company's equity and profits. While the value of certificates is not static and largely depends on public perception, the stock market remains one of the main means of investment and can be used as an indicator of general economic health.

Stocks and shares

When companies need cash for various purposes, one option they have to raise capital is to divide ownership of their business into parts known as shares. They sell those shares and use the funds for things like developing products or buying buildings and equipment. To provide some proof of this division of ownership, they print certificates called shares, and the people who buy the certificates are called shareholders. Many people use the words "shares" and "shares" - or similarly, "shareholder" and "shareholder" - interchangeably due to their close relationship, but the former term technically speaks of certificates for all companies in a very general sense, and the latter is usually linked to a single specific business.

As co-owners of a company, shareholders are entitled to a percentage of the company's assets and profits. They usually expect the business they've invested in to make money, because then they'll get a share of the profits; in fact, the basic objective is usually to buy stocks when the price is low and sell them when the value is high. With common stock, they also often have voting rights, usually get one vote on company affairs for every certificate they hold, and often receive annual or quarterly reports that tell you how the company is doing financially. Preferred stocks generally do not have voting rights, but many people like them because they give shareholders more profits and assets, and because they give priority to investors if the company goes bankrupt and liquidates what they own.

Market objective

At the most basic level, the stock market provides an organized way for companies to connect with potential investors who want to buy shares and become co-owners. When a corporation wants to sell shares in its company, it usually lists its shares on an exchange, which is an organization that hosts all activities related to buying and selling certificates. A company often has to meet specific requirements to be listed on an exchange, so investors often consider them to be less risky compared to companies that sell "over the counter" (OTC) or are not listed. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ) are commonly used stock exchanges in the United States.

Basic sales process

When people are interested in buying or selling stocks, they usually contact a stockbroker, which is a person who works for a company licensed to trade on stock exchanges. He forwards the trade message to the floor of the correct exchange, usually receives a commission for his service, and a company representative completes the trade order. In the past, the trading floor was a physical location on the exchange where brokers met to conduct buy and sell transactions, but today virtual and electronic trading sessions using the Internet or telephone interactions are much more common.

A common misconception is that a person needs to have a lot of money to go through this process. An individual needs to weigh the profit potential against the purchase fee, but many stocks are relatively cheap and provide good long-term returns, and because brokers earn a commission on every trade, they are usually willing to complete the stock handling. A very low number of certificates. In addition, many people pool their resources in what is called a mutual fund, which allows investors to work together to buy more expensive stocks.

stock value

The value of a share is initially determined when a company conducts an event called an Initial Public Offering (IPO), during which an investment bank uses various complex techniques and formulas to estimate how much the company is worth. The company then divides that valuation by the number of shares it wants to offer. After that, however, the value of stock certificates largely depends on public perception. According to the basic principles of supply and demand, when people think the company is not doing well, they usually don't want to buy the stock certificates and demand decreases, which reduces its value. On the contrary, if the public believes the business is successful and will have profits and assets to share, investors often want to buy the shares, and the demand and value of the certificate increase.

bear and bull

If an individual believes that the stock market is going to go down, he is called a "bear" and usually buys stocks very cautiously. People who think they will go up are called “bulls” and tend to invest more aggressively. If stock prices collectively tend to rise, the stock market is called a "bull market". However, when stock prices as a group tend to fall, people refer to this as a "bear market".

Connection with the financial portfolio

Investors have many different options in terms of where to put their money, such as real estate, savings accounts, retirement funds, education savings plans, and bonds. Stock certificates are just one more option. However, traditionally, they often outperform other areas of investment by providing larger payouts. For this reason, most financial experts consider them a vital part of a healthy investment portfolio and encourage people to regularly participate in the stock market.

While experts don't always agree on the "best" way to buy or sell stocks, they often advise investors to buy stocks in many different companies. This reduces the risk of extreme money loss, because if a company goes bankrupt, a person can still have many other valuable certificates. Some people take this even further and claim that simply buying more than one company is not enough: they say people should make sure their stock comes from multiple sources. industries because shortages or disputes often affect entire industries.

Economic health indicator

To some extent, the stock market can show how strong an economy is. It usually drops when the economy is in trouble, because people tend to stop buying certificates when money is tight, focusing on necessities like food or mortgage payments. The drop is also linked to the fact that many companies are interconnected, such as a computer company that buys microprocessors from a manufacturer. When one company suffers, others suffer too. Bull markets, on the other hand, generally indicate that people can invest and buy again, or, given the link to perception and supply and demand, simply believe that the economy is recovering.

Brief history

The first public stock market is supposedly the Amsterdam Stock Exchange. This Dutch stock exchange was founded at the beginning of the 17th century and started the trend of buying and selling shares of the company. Exchanges now exist in most developed countries. The largest are in the US, UK, Canada, Germany, China and Japan.