You may have heard that investing in stocks can generate life-changing profits, and you are probably allured by it. However, do you know how the market works? What makes it different from the currencies market or the stock exchange?
If you’re curious, here is a list of the basics of stock markets. Read and Learn!
The stock market basics
Let’s start with the very basics: what is a stock? By definition, stocks represent ownership in businesses that have their shares available to public investors.
Shares, on the other hand, represent ownership in a company. For example, if you buy a share of Amazon, you own a small part of the business
That is very tricky! Make sure not to confuse with online trading. When you are trading online, you don’t own the shares – you are only speculating on the market movements and making profits out if.
How does the stock market work?
Stock markets make it easier for investors to sell and buy stocks with only a click of a button.
Most stock trades take place between investors. For instance, if you want to buy shares of Microsoft and click the “buy” button, you are buying shares that another investor has decided to sell — not from Microsoft itself.
What determines the price of the stocks
Plain and simple – stock prices are determined by supply and demand. At any moment, someone out there is buying a certain stock at a given maximum price. On the other side, we have someone willing to sell that stock at a given minimum price. Remember, there is also someone willing to buy and someone willing to sell.
To make it easier, think of stock market trading like an auction, with some investors bidding for the stocks that other investors are willing to sell.
If investors buy stocks faster than sellers sell them, then we have a great demand, and prices go higher. On the other hand, if more investors are selling stock than buying, we have more supply, and the market price will drop.
Are you ready to trade your first stock?