Understanding the Stock Market 101!

Stock Market | Learning | 16th July 2022 | Virtual Wire

 

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If you are looking to get started with investing in stocks and shares, you need to get to grips with understanding the stock market.

While you don't need to become an expert or have in-depth knowledge, you certainly need at the very least a basic understanding. In its simplest form, the stock market is just an auction, but it is one with a sting in the tail for the unwary.


Stock Market Works On-Demand & Supply

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To help you understand the stock market, you need to think of what makes it work. Very simply, the market is driven by supply and demand. That means that if only a very limited number of shares in a particular company is available, their demand will be far greater than if the marketplace is awash with them. So, you can see that just like an auction where many people want what is on offer, the price will increase to reflect that demand.

Once you have grasped the concept of how the stock market works, you can begin to look at how to spot in advance whether there will be a rise or fall in demand for those stocks and shares you are interested in.


How Does The Stock Market Work For You

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The stock of publicly owned businesses is bought and sold at a stock exchange or market. Simply put, the stock market is a place to shop for shares of companies. You do not need to travel to the stock market because there are brokers who will represent your interests by buying and selling stock on your behalf. This makes the stock market easier for people who want to buy and sell stock. There are many ways that investors try to determine which way the market or an individual stock will move. They will look at any technical indicators that they feel will give them a clue as to what may happen. Of course, outside influences can also affect matters. These can happen very rapidly without warning and send prices shooting either up or down and confounding the indicators.


Be Sure About What You Choose

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A feature of any stock market that further complicates matters is that there are several prices for any stock. You need to be sure which fee you are referring to if you will fully understand the stock market. While the opening and closing prices refer to the price at the opening or closing of the stock exchange each day, the bid and ask ones perhaps are not so obvious. The easiest way to remember is to realize they are stated from the broker’s point of view. This means that the asking price is the price being asked for by the broker, and the bid is what they will bid for any stock you wish to sell. It's all a matter of understanding the terminology!


Is A Stock Broker Necessary?

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Without a broker to represent you in the stock market, you would have to find people who might be interested in your stock and negotiate prices on your own. This could be a costly and time-consuming endeavour. Probably not much stock would get bought and sold if everyone had to do it independently. The stock market has a special effect on stock prices. Since all the stock is bought and sold at one particular venue in India, those venues are the NSE and BSE; investors can watch their stock rise and fall momentarily. Therefore, they can instantly react to prices, deciding whether to buy or sell based on the stock market fluctuations.


What Is A Corporation In The Stock Market?

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Any business wanting to sell shares on the stock market must, first, incorporate. Owners of the corporation hold shares of stock in that corporation. The fluctuation of the market controls the value of their stock. The corporation’s value is influenced more by the change in the market than by its actual earned profit. Some people wonder if the stock market is or is not a truly good way to value a corporation. Each corporation has a group of owners, known as shareholders. The shareholders elect a board of directors to make the major decisions regarding the corporation.


The board of directors decides how many shares of stock in the corporation will be offered. These shares of stock are then held either privately or publicly. Privately held shares of stock are not bought and sold on the stock market. Only publicly held shares of stock are bought and sold on the stock market. A corporation with privately-held shares of stock is probably owned by a group of people who all know one another and sell their shares of stock back and forth among themselves. A corporation with publicly held shares of stock is owned by any number of people who buy and sell their stock openly on the stock market.


What Is An IPO?

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When a corporation initially sells its shares of stock on the stock market, it is called an Initial Public Offering (IPO). Let‘s say that the corporation initially sells one million shares of stock at seventeen dollars per share. In this manner, the corporation raises seventeen million dollars. After the brokerage fees are deducted, the corporation invests money for equipment, operations, and employee costs. The people who purchased shares of stock in this corporation via the stock market are betting that the corporation will use this money to make a profit. These shareholders can then receive a return on their investment through dividends or by selling their shares on the stock market at a profit. Stocks and shares can be profitable and fascinating, but only once you understand the stock market.

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