What is the Stock Market and How does it Work - Simplified Explanation

 As you reached this topic, dear reader, you are interested in knowing the Stock Market, its essence and how it works, and this may be your start to enter the Stock Market, trade stocks, bonds, participate in investment funds, Forex or foreign exchange, and all What is traded in the stock market and what exactly is sold in this market, you may look for the appropriate platforms to buy some stocks or bonds.

We tell you that after reading all the lines of this topic, you will know what they are selling on the stock exchange or the Stocks Exchange, the essence and principles of the stock market. How to trade on the stock exchange and what is required for that. Add that you will enhance your knowledge of concepts and definitions surrounding the concept of the market.

Regulation in the Stock Market today is one of the most popular types of money investment, allowing you to make high profits with moderate risk.

The importance of the Securities Market cannot be overestimated, as it is a mechanism that allows you to transfer funds across different economic sectors and attract huge capital to government and private companies.

Stocks, Bonds, Futures, and Futures are bought and sold on the stock markets, which bring together buyers and sellers of shares of publicly traded companies. Equity markets work a bit like auctions, where potential buyers call their highest price, the bid, and potential sellers call the lowest price, or ask. The actual price at which the trade is executed lies somewhere between supply and demand. Trades can be placed by stockbrokers, usually on behalf of portfolio managers or individual investors like you. The stock market in the United States consists of 13 stock exchanges, the most famous of which are the New York Stock Exchange and Nasdaq, and there are international exchanges and local exchanges.

What is the Stock Market in simple words

The stock market is a structure of rules, regulations, and mechanisms that allow you to trade in securities, whether they are affiliated with government agencies or private companies.

Not only does this concept mean stock exchanges to perform trading operations, but it also means the main tool for attracting cash flows into businesses, with the help of companies gaining real market value through shares issued for free circulation.

The essence of the stock market and its functions are practically the same as in any other market - sellers meet with buyers to strike mutually beneficial deals.

Another important component of the stock market is the attraction of free capital and financial savings. That is, stock trading provides many investment options and concentrates money in the market.

The stock market, in simple words, is one of the areas of the financial market where securities are used as commodities: stocks, bonds, futures, options, and others. In addition, each transaction takes place according to strict rules and under certain conditions.

The international stock market is called one area of ​​all the world markets where paper assets are bought and sold.

According to Wikipedia's definition, the stock market is a set of economic relations related to the issuance and circulation of securities between its participants. This market, as an integral part of the capital market along with the money market, is at its core the global financial system.

Due to the fact that stock market assets are securities, it is also called stock market, bond market.

The largest stock market representatives are located in the United States, Japan and Russia. One of the most popular exchanges is the New York Stock Exchange (NYSE) with an average turnover of about $ 16.5 trillion.

The second largest market is the NASDAQ, and is also located in the United States. The list of shares traded on the NASDAQ includes more than 3.2 thousand companies, including Arab companies.

Also among the leaders is the Japan Stock Exchange TSE (Tokyo Stock Exchange).

The Moscow Stock Exchange is the Russian stock market, with an average volume of 23.8 trillion rubles.

How does the stock market structure and functions work

The global stock market is a supranational structure to which all regional stock markets belong. Local markets are represented by individuals and legal entities, and on the international platform, entire countries act as bidders. Access to trade is provided to nearly all economies of the world, so this market is global.

The stock market is a kind of federation of credit and financial institutions, including stock exchanges, stockbrokers, national agencies, and dealers. Also, insurance companies, banks and government financial services are involved in the market work, which affects the market dynamics.

Any operation carried out in a market setting can be attributed either to commercial or financial manipulation. In the first case, this is the reciprocal settlement of the two parties to import and export, and in the second case, the movement of capital between several sectors of the economy. The redistribution of money between the domains actually regulates the market economy. In addition, the stock market, through the issuance and sale of shares, provides support to companies facing financing difficulties.

The important functions of the Stock Market are:

• Supporting national economies in overcoming financial difficulties.
• A balanced distribution of the money supply between the various sectors of the economy and companies.
• Providing opportunities to find investors for companies and mutually beneficial cooperation between them.
• Money supply growth. The market creates free cash flow through which investors expand investment opportunities.
• The organizational function. The prices of securities in the course of trading determine supply and demand, which are consistent with the rules of the open market.

Free trading determines the capitalization of companies through their shares and equilibrium assets through government treasury bonds. Also, trading has an effect on cash flows through banking institutions and financial structures.

Also, the indicative component of the stock market can be distinguished separately. The recent global financial crisis has shown that market participants tend to respond to impending economic problems before politicians start talking about them. Therefore, more developed government structures with big capital are more stable than the rest and able to attract better quality investments.

The Stock Market operates with the following entities:

• Exporters. These participants include legal entities. A person or body affiliated with the local or executive authority. Basically, issuers are the sellers who issue securities that define their field of activity. The process of issuing securities is called the issue.
• Investors. An individual, company, corporation or government agency can work as an investor. These participants use their capital to buy stocks and other securities for a subsequent profit. These people are at risk, because if the project is unprofitable, the money will be lost.
• Professional market participants. In fact, these are third parties that directly represent the stock market itself, which provides the bulk of the trading volume. This category includes brokers, mutual funds, dealers, brokers and professional representatives of any of the parties. These people earn on a percentage of successful transactions, so they are interested in the maximum number of contracts entered into to buy / sell.

Stock Market Ratings

The stock market is also divided according to some criteria:

• By issuers: the private equity market, the government bond market and other securities.
• By belonging to a stock exchange - an exchange or an over-the-counter market.
• Conditionally traded: permanent, long-term, medium-term, or short-term securities are traded.
• By regional affiliation - international, regional or national market.
• By economic sectors.
• By types of paper financial instruments - stocks, bonds, futures, etc.

Usually the middleman between the issuer and the investor is the exchange, which is involved in creating and providing all the infrastructure needed for the full trading cycle.

There are several sections inside the drainage hall, including:

• A trading system that accepts money from buyers and sellers.
• The clearinghouse, which deals with the accounting of trading volumes, as well as monetary issues - transfer of funds to issuers, withdrawals of funds from investor accounts, etc.
• The Depository Department that supervises the economic aspect and controls all non-cash transactions.

The stock market is classified according to the movement characteristics of paper assets.

• The main market. This is the name of the market in which the newly issued securities are initially placed. The offering can take place in a public form (IPO) or in closed form, whereby the shares are not offered for purchase to anyone interested. The initial placement can be done through an exchange or otherwise.
• Secondary market. In this market, previously issued securities that have undergone an IPO are traded. The primary turnover of transactions is located in equity assets in the secondary market, and this is the market in which novice investors are most familiar with, because exchanges represent it in the first place.
• The third market. In this market, transactions take place with securities that are not listed on the stock exchange, that is, with those that have not been listed. Its other name is Over the Counter Market (OTC). It was of great importance in the fifties. In the last century, at that time, investor companies began to buy common stocks to protect themselves from inflation, and stock exchanges maintained a steady commission on transactions. By executing operations without the participation of exchanges, they saved costs and did not create price fluctuations that were inevitable on the exchanges during large transactions.
• Fourth Market. This is the name of electronic trading systems to work without intermediaries with large bundles of securities among institutional investors. Popular systems include InstiNet, POSIT, and Crossing Network.

How does the stock market work?

The primary role of the stock market is to bring together buyers and sellers to negotiate stock trading. To determine the price, the stock market works somewhat like an auction.

Buyers want to pay the lowest possible price. Stock brokers who want to buy (or who are customers who want to buy) can submit the quotes that they are willing to pay for the share. The highest price becomes the "best offer".

Sellers want to sell at the highest price. Stock owners or stockbrokers can demonstrate their willingness to sell by placing an order, which is the price at which they wish to sell the shares. The lowest price becomes the "best request".

The difference between the best bid and the best bid is called the "spread". The two parties negotiate to meet in the middle, and the broker who executes the trade takes the difference as his fee.

As you follow the stock, you will notice the share price movements. The share price can change frequently depending on the number of investors looking to buy or sell shares and the number of deals that occur.

Shares are traded on an individual basis, through negotiation of the bid and ask price. These prices may move with the stocks of other companies as economic, political and specific news affect the market movement in general.

Who uses the stock market?

Here are some of the key players you should know:

• Retail investors like you can buy or sell individual stocks through your brokerage account. When an order is placed, it is sent to the exchanges where the trades are executed.
• Stockbrokers are "registered representatives" who have taken training and passed the licensing exam. They can buy and sell securities on behalf of investors. Stock brokers work in brokerage firms, which can act as managers or agents in transactions, and make money through profit margins, as managers or commissions as agents on trades. Many brokerage firms charge fees for their clients who use the brokerage to place orders and execute stock trading. Portfolio managers act like restaurant owners - they'll order a lot of food because they feed so many people. Portfolio managers place large orders to buy and sell stocks because they manage relatively large equity portfolios, which other investors like you can own. If you own stocks, a mutual fund, a pension fund, a retirement fund, etc ... a portfolio manager is likely to deal with the basic set of securities (stocks, bonds, etc.) in the fund portfolio.
• Investment bankers help companies list shares on exchanges.
  

What is traded on the Stock Market

Securities, liabilities and rights are primarily traded in the stock market. Stock assets are represented in several types of securities and liabilities.

• Shares: The purchase of these securities means the contribution of equity capital to the capital of the company issuing those shares. There are two types of shares - regular and preferred. By purchasing securities, the shareholder obtains the right to receive a portion of the company's income in the form of profits. Additionally, for example, by becoming an owner of half of the company's shares, you will be able to claim 50% of all of its holdings if the company gets liquidated.
• Bills of exchange: This guarantee is a commitment to pay an amount of borrowed money. The bill contains specific information about the redemption amount and date for bonds: These paper assets include the payment of dividends to their holders, as well as the obligation to return their full value after a certain period of time. There are three types of bonds: corporate bonds, government bonds and private bonds. The difference between bonds and other securities is the increased reliability and stability. The profits are often small but quite stable and independent of market fluctuations. To invest big money, federal loan notes are often used. Government bonds are often tax deductible.

Also in the stock market, transactions are made with derivatives of securities.

• Futures Contract: This instrument is a fixed-term contract to supply a product or raw material on a specified date at a specified cost.
• Stock Option : An option is a type of communication that gives its owner the right to sell or buy an asset at a predetermined cost. Options belong to a broad class of assets, which are called contingent claims, i.e. payments under these contracts occur when an event occurs.

Stock Market Indices

A stock index is the average weighted share price of a certain number of securities for various economic sectors, banking institutions and other credit and financial institutions. This tool allows you to get an idea of ​​the price condition of an exchange, that is, its general direction. It is used for statistical measurement, analysis, and prediction of the trading status of stocks in general and their individual fields.

Different indices are calculated for a different number of securities, it can be 10 stocks, 500 or more. Different stock indices for a single market allow you to evaluate it from different angles. The most famous indices in the world are the American Dow Jones, Nikkei, the German DAX (Deutsche Actinindex, DAX), the Russian RTS, and the MICEX.

Global stock exchanges offer thousands of securities for trading, however, to understand the state of the stock market in a specific country, the corresponding indicator is used, which shows the average index of the dynamics of several stocks listed on this exchange. Since stock index values ​​are just numbers, they are not denoted by currency, but in points.

How to make money from the Stock Market

The Stock Market offers great opportunities for profit and passive income generation for both companies and private sector participants. There are many strategies and tactics to operate in the market, but their application fits into three areas.

• Investments in securities.
• Speculation in securities.
• Selling bonds and stocks.

Earnings can be observed on stock indices as a separate item. Unlike stocks, they are not securities. In most cases, two tools are used to deal with indices: futures and trusts.

In the first case, futures contracts are bought on the index, and in the second case, participation in the fund. For example, one of the largest US indexes, the S & P500, can be bought through ETFs. Standart & Poor Corporation, which developed this stock index, owns the SPDR trust fund, whose shares reflect the index's prices. It can be bought on the stock exchange like any other securities. The fund's equity ticker is SPY. For a private investor, both methods have a slight difference, as the index and the fund are bought through the trading platform like any other asset.

How to enter the Stock Market

The mediator between issuers and investors is the stock exchanges that directly regulate the trading process. The largest global stock exchanges are:

• New York Stock Exchange - NYSE: It is the main American exchange with the largest turnover in the world. It is located in Wall Street, New York. The Dow Jones Index is calculated using this site's stock prices along with Composite and the ARCA Tech 100 Index, among others.
• NASDAQ Exchange: This US exchange focuses on transactions with securities of companies in the high-tech sector, such as Google, Intel, Facebook, and Tesla.
• LSE London Stock Exchange: The London Stock Exchange is the most famous and oldest exchange in the world. It is also considered the most international, as about half of its sales are international stock trading. Companies from Russia are also represented, for example Evraz, Rosneft and many others.
• Moscow Stock Exchange: which included in 2011 the RTS and MICEX. The contract includes the central securities depository, as well as the largest clearing center in Russia - NCC Bank.

But it is impossible to buy shares or bonds directly for individuals on the stock exchange; For this purpose, private intermediary companies have been created - middlemen. A stock exchange place can cost several hundred thousand dollars a year. Only institutional investors in the form of multi-million dollar trust funds, hedge funds, and other funds can purchase assets directly on the exchange.

But this situation has changed with the cryptocurrency market, and the emergence of many platforms through which you may buy shares, one of these platforms is the robinhood platform, but the feature to buy shares directly through the platform is available to citizens of the United States of America at the present time.

Squeezer of previous lines

The stock or stock market is a complex global system that lives by its laws and regulations. It is difficult to overestimate the impact of the stock market on the overall economy and economy of individual countries.

For a long time, the stock market was unavailable to ordinary people, which led to many speculations about trading on the stock exchange. In fact, most of the work in the stock or stock market falls within the framework of buying and selling shares of different companies in order to make profits on the basis of the principle of buying at a cheaper price and selling at a higher price as is the case with any commodity and how it is sold by traders. Nowadays, when access to exchanges is available to almost everyone, many have made stock trading the main component of their income.

Trillions of money turnover that takes place daily on exchanges has a powerful effect on the prices of financial instruments and the economic condition of the world as a whole.

The market also has a strong influence during periods of crisis and financial instability. Investments in stocks and other securities provide greater stability to companies and private investors and are used as protection against risks and various force majeure.

If your goal is to learn how to manage and multiply your own money, then you need to develop an understanding of how it works, how it is traded, and the methods in which it can grow.

Financial markets are the best place for incremental capital formation, but it is important to remember that no easy and fast money cannot and cannot be.