What is the Stock Market?

If you’re not exactly sure about the workings of the stock market, you’ve come to the right place.

The stock market is the market where the shares of publicly traded companies are issued and traded through exchanges. This market is also called the equity market. Through the stock market, companies acquire funds (capital) in exchange for small pieces of the company called shares.

Let’s look at it another way. The stock market allows average investors like you and me to participate in the financial results of publicly traded companies.

Not all companies are traded on the stock market, just those which are public. A public company is a company that has shares for the public to buy. That’s why public companies and the stock market go hand in hand together.

Now when I say “participate in the financial results”, obviously as an investor owning shares, you would want the company to do well and the value of the shares to go up. Although that isn’t always the case and the value of a share can also easily go down.

First let me explain that if you own a share (or several shares) you are called a shareholder. There are a few ways to make money from the stock market as a shareholder. If you own shares and the value goes up and you  sell it at the higher price, you’ll make a profit.  This type of profit is called a capital gain.

Some stocks have something called a dividend. That’s when a company gives a distribution of cash from their earnings or shares to their shareholders.

Individual stock prices go up and down everyday because of a number of factors, but for now let’s look at supply and demand.  If more people want to buy a stock than sell it, then the price moves up. There is more demand than supply.

The opposite is true too. If lots of people want to sell a stock they own and nobody want to buy it, then the price will go down. In this case there is more supply than demand.

There are many other factors that can contribute to how the stock market performs. This includes company earnings, wars or conflicts, government policy changes, technology changes and natural disasters, to name a few.

Of course the goal is to buy low and sell, high, but that isn’t easy to do and never guaranteed.

Investing in the stock market can be profitable but you can also easily lose money. It is important to be educated in your choices and it’s beneficial to use a good financial planner or expert to help in your investment decisions.

When the market is doing well, your money can grow significantly. Please make sure to never invest in the stock marketing without a clear understanding of what you are investing in. You need to be prepared for the possibility that you could incur a loss.

Posted on July 6, 2016