The stock market means a variety of markets and shares where activities of issuance of shares occur of companies which are public. Companies get public when they issue their shares for sale. All the financial activities are operated through OTC (Over The Counter) marketplaces which regulate in a certain way. When a company goes public, it has to decide the prices of its shares and list all the share prices. This is known as IPO (Initial Public Offering). After this, investors can buy the shares which will help the company to raise its business by increasing its value. Indexes are where the share listings are done. The leading indexes for stock exchange are Nasdaq, NYSE (New York Stock Exchange) and the CBOE (Chicago Board Options Exchange).
Though the terms stock market and stock exchange are used for the same meaning, the latter is a subset of the former. We know that the stock market primarily deals with the stock exchange, but stock markets also trade derivatives based on stocks, bonds, currencies etc.
How the Stock Market Works
Stock Market provides an environment for stock exchange that is safe and disciplined. Here, markets that have been made public can sell shares of their companies with low to zero operational risk. Suppose, a company wants to go public and sell its shares. It has to divide the company into, like , a thousand shares. Then, sell five percent of it at a rate of $100 per share. After the share listings they would become public through the process of IPO. After that, investors can buy the shares and hold onto them for their preferred duration. They refrain from selling the shares in hopes of any potential income through dividend payments.
The stock market also has specific indicators to show if their is a rise or fall in the market. Stock exchange maintains various sector and market-level indicators. This market works as the primary source to sell shares to the common public for the very first time. The investors need to have all the data and information related to the stalks’ buy and sell orders. This would ensure transparency and fair pricing of the shares.
In earlier times, stock purchases used to take place physically. But now, all the works of stock market is done electronically. The basic supply and demand rules apply in stock exchanges as well. The prices of stocks has a direct correlation to their prices. Their is a selling process of stocks known as bid-ask. In this process, the investor provides a price of the share that he is willing to pay. This is known as a bid. The bid is always lower than what the company asked. In this way, multiple investors bid on the share. And, the highest bid gets the share. Although the process sounds very complicated, it’s actually all done through computer algorithms.
How To Invest In The Stock Market
If you want to purchase a stock, you can do so through a brokerage account. You can also do it through an individual retirement account like IRA. Both ways help you to buy and sell stocks through an online broker. The broker acts as the middleman in the stock exchange.