What is the stock market
What is the stock market? This is what you will learn about in this article
Most people know that investing in stocks can be a great way to build wealth and earn profits over time, and this is certainly true. But there are many people who do not have enough information about how the stock market works, or what makes the stock market different from a stock exchange or a stock index. Do you know what an arrow is? If you are interested in learning more information about the stock market, we will review in this article a summary of the basics of stock markets, stock exchanges, and stock indices.
How does the stock market work?
Before we can get into how stock markets work, you need to understand first what stocks are and how they work. Here are some basic concepts that may help new investors understand how the stock market works.
What is the arrow?
They are called shares, as well as publicly traded shares or publicly traded companies, and they represent ownership interests in companies that choose to make their shares available for ownership by investors in the public. An equity stake represents an ownership interest in a company. For example, if you buy a share of Apple stock, you own a small part of that company and you will participate in its success. In other words, instead of a company being owned by an individual or a group of individuals, some companies choose to “be a public company,” which means that anyone can own a part in it by buying shares of that company’s stock.
Stock market basics
So how does the stock market work? The truth is that there are entire books that explain the stock market and its various aspects, but you do not need a lot of time and effort to understand these basics of the stock market well. Equity markets simply facilitate the buying and selling of these shares between individual investors, institutional investors, and companies.
Most stock trading takes place between investors. This means that if you want to buy Microsoft shares for example and you hit the “buy” button through your broker’s trading platform, you are buying shares that another investor has decided to sell – and you are not buying those shares from Microsoft itself. By purchasing shares of this company’s stock, you are an investor in the underlying company.
How are prices determined in the stock market?
Stock prices on stock exchanges are governed by supply and demand. At any given time, there is a maximum that a trader is willing to pay for a particular stock, and there is also a minimum price that someone else is willing to sell the shares for. It can be said that stock market trading is similar to an auction, where investors bid on shares that other investors want to sell.
If there is a high demand for shares, investors will buy shares faster than sellers want to get rid of them, thus driving up the price. On the other hand, if more investors sell shares than buy them, the share price in the market will fall.
In order to take a step forward in the field of stock trading, it is important to always think about how you will buy or sell the stocks you own. As mentioned, the stock market is where market makers come to do this.
Stock types
Understanding the different classes of stocks is key to building a solid portfolio. Investing in the stock market has always been one of the most important ways to make profits. When you search for stocks, you will learn about different classes of stocks and their different ratings. Here are the main types of stocks that you should know about:
- common stock
- Preferred shares
- Large capital stocks
- Mid-cap stocks
- Small stocks
- local stock
- international stocks
- growth stocks
- value shares
- IPO shares
- Dividend shares
- Non-dividend shares
- income shares
- rotating stock
- non-cyclical stocks
- Safe stocks
- leading stocks
stock market sectors
A stock market sector is a group of stocks of companies operating in similar industries. There are 11 different sectors in the stock market, according to the Global Industry Classification System (GICS), which is the most widely used rating system.
Shares are classified into sectors in order to facilitate comparison between companies that are similar in their field of work. And when you invest, you can choose from stocks in the sectors that interest you. The stock market classification of sectors also compares the stocks that generate the most dividends. This helps you make decisions about your next investment.
The following are the 11 stock market sectors, according to the Global Industry Classification System (GICS):
- energy sector
- material sector
- industries sector
- Services sector
- healthcare sector
- the financial sector
- luxury consumer goods sector
- consumer goods sector
- Information technology sector
- Telecom services sector
- Real estate sector
stock exchange
Stock exchanges are places where people buy and sell stocks. The companies agree to list their shares for trading on the stock exchanges they choose, and the members of each stock exchange are allowed to trade the shares listed there.
What are stock exchanges?
The stock exchange works like a farmers’ market, where farmers are in the market to get space to sell their goods. Buyers come to the market because they know that they will be able to buy from many farmers who sell a lot of different agricultural commodities. Here we find that both farmers and buyers reap benefits from the market. In fact, the farmers’ market in this example is not actually involved in the buying and selling of agricultural commodities; Either the role of this market is simply to provide the required space for buying and selling so that farmers and buyers have a place to meet, trade and exchange. Similarly, stock exchanges aggregate companies and shareholders who want to sell shares, and investors who want to buy those shares from them.
Among the most famous global stock exchanges:
- New York Stock Exchange
- NASDAQ
- Shanghai Stock Exchange, China
- Japan Stock Exchange
- Hong Kong Stock Exchange
- The Saudi Stock Exchange is “Tadawul” at the Arab level
Brokers in the stock market
When it comes to understanding the stock market, one of the very important concepts that you have to grasp is the idea of a market maker. Specifically, there are not always buyers to match sellers of shares, so how can brokers buy and sell the shares on your account instantly.
To always make sure that the stock market continues to be active on the stock exchange and that investors can choose to buy and sell stocks at a time they want during market hours, individuals known as market makers act as intermediaries in the stock market between buyers and sellers. Investors should know the following basics about this process:
- Market makers buy and own stocks and constantly publish buy and sell quotes for stocks.
- The highest bid to buy a listed stock from a market maker at any time is known as the “bid price”. The lowest selling price is called the “ask price”.
- The difference between the bid price and the ask price is called the “spread”.
The main reason to use a stock broker system in the market instead of allowing investors to buy and sell shares directly to each other is to ensure that there is a continuous buyer in proportion to each seller and vice versa. If you want to sell a share, you don’t have to wait until the buyer wants the exact number of shares – the market maker will buy them right away.
What happens when you buy a share?
Investors must make transactions to buy or sell stocks through a broker. Simply put, a stock broker is an entity authorized to trade stocks on the stock exchange. This broker may be someone you tell what to buy and sell, but more commonly a broker is an online broker, who processes all of your transactions completely electronically.
How do you buy a share?
To purchase a share, you will have to follow the following simple steps:
- You tell the stock broker which stocks you want to buy and how many of them. You can set this through the stock broker’s trading platform, completely automatically.
- Your broker transmits your buy order to the exchange, at which point the market maker sells your shares at the current market price.
- You will now find the shares in your account.
How does a stock index track the stock market?
There are some phrases that you may have heard, such as: “the market is going up,” or that the stock is “outperforming the market.” Often when talking about the stock market, people generalize “the market” to a stock index, and they think that the stock market is just a stock index. But in reality, stock indices, such as the Standard & Poor’s or the Dow Jones Industrial Average, are a representation of the performance of a large group of stocks or a particular sector and are used as a benchmark to compare the performance of individual stocks or an entire portfolio. For example, the Standard & Poor’s 500 Index tracks the performance of the 500 largest publicly traded companies in the United States of America.
Indexes are a convenient way to discuss an approximation of what is happening in the market, but it is important to understand that the major stock indices that you see on TV and in the news do not represent the entire stock market.
What is the difference between the stock market, the stock market, and stock indices
These are three different terms that have similar meanings and are often misunderstood. To clarify, the stock market refers to the process of investors buying and selling shares with one another and facilitating this process. The stock exchange is the actual intermediary that connects buyers with sellers, such as New York Stock Exchange NASDAQ and others. A stock index is a representative of a group of stocks that are used to track their performance collectively.
