What Is A Stock Market?Answering the question, "What is a stock market?" is complicated and far from easy. Lets start here... There is a lot of talk lately about the stock market. Many people have heard of the stock market, but not nearly as many know what the stock market is and how it works. This is in part because investment information is a valuable commodity and professionals do their best to keep it away from the general public. Whilst things might be 'published' and therefore in the public domain, they may have a very limited audience.
First, the work “stock” means a supply. A grocery store has stock on its shelves. When you order an item online, you will check to see if it is “in stock.” You can have a stock of shoes in your closet. In the case of the stock market , the term stock also means a supply, but it is a supply of money. It is money that a company has raised because people have given the company money, hoping that the company will help their money to multiply. In many countries, an individual equity or share is referred to as a stock. It is also worth pointing out that loans to companies are stocks as well - though they are usually referred to as bonds. Are you keeping up? This terrible use of language is everywhere in the investment world and it really does not aid the understanding of anyone. They are actually traditional terms meaning different things in different parts of the world. A “market” is a place where you bring or offer things to sell. Items are bought and sold in a public market, and the stock market is very similar. While the stock market no longer refers to an actually physical place where stock is bought and sold, it is a similar concept. The modern stock exchange is an electronic or virtual place - a platform if you prefer - that enables the business of buying and selling holdings in companies. There are different reasons why a company will sell equity and raise capital. If a company wants to expand – to hire new people, for example; or to build larger facilities or branch out and develop new products - they need more money. If they try and borrow money from a bank, they will owe money; plus they will have repayment and interest to worry about. By issuing (or selling) stock - known as an initial public offering - the company can raise the money they need without going into debt. Purchasers (the investors) are actually allowing the business to expand because they are providing the capital it needs to cover these additional expenses. People invest in companies because it means that they own part of that company. Each part that is sold is referred to as a “share”. For example, if a company issues 200 shares of stock, and you bought 2 shares, you would then own 1 percent of the company. In the real world of course, large companies need to enable a liquid market. This means that rather than selling 200 shares, they might sell 20 million! This will mean that the price per unit is affordable enough for small - private - investors to buy as well as large institutions (pension funds for example).
People invest because, over time, they will tend to make more in the stock market than in other investments – such as saving money in a bank or buying bonds. Historically, long-term market returns are ahead of most other forms of investment. Of course, short-term returns can be quite volatile and almost anything can - and sometimes does - happen. To read more about related subjects, please visit the following pages:
Recommended: Find A Stockbroker | Learn To Trade | Investing Beginner Other Sites: Investment-For-Beginners | Stock Market | Financial Blog |