Whether you are interested in the movement of the stock market on a daily news headline or do not even bother at all its up and down motion could mean loss or gain for many people relying on the stock value. If you are in the trading industry, financial business owners, or investment sector, you are quite familiar with the terms related to the stock market such as stock exchange, stock, etc. However, for someone new to discovering the depths of stock market 101, some terms may sound foreign and a bit challenging. Starting with the question – ‘what is the stock market’ will lead you to explanations of how it really works.
Yes, you may have wondered how it works and why some people are very keen on learning everything about the stock market. The truth is, it pays to know it well. Once you have learned what triggers the stock market to go up or down, you will be able to arrive at the best decision on whether to buy or sell a stock. Oops, we may be a little too advanced, so let us get things clearer from the very basics first. We love to share what we know about how our users can cope with what’s in and out for business or personal matters here at Strikingly. And the stock market is one of the most exciting topics we’d like to share.
Image taken from Unlocked Capital website
What is the Stock Market?
Nerdwallet defines the stock market in the simplest way – it is where investors buy or sell investments. These investments are usually about stocks referring to shares of ownership in a public company. Purchasing a public company’s stock means you buy a small piece of that company.
If you are familiar with foreign currency trading, it’s one of the most popular investments that requires knowledge about how the stock market works. You might have purchased a stock online. That is where you need to decide whether to buy or sell a particular foreign currency for your investment. You need not be an investor to invest in the stock market.
In most cases, it is open to everyone while being regulated by the United States Security and Exchange Commission; the SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
Forbes Advisor states that the stock market is a constellation of exchanges where securities like stocks and bonds are bought and sold. In the United States, “the stock market” and “Wall Street” can refer to the entire world of securities trading—including stock exchanges where the shares of public companies are listed for sale and markets where other securities are traded.
Image taken from Unlocked Capital website
What is a Stock?
If you wonder what a stock means, it is a type of investment representing an ownership share in a company. Most investors buy stocks because they think they will increase in value over time; otherwise, they will sell them thinking that the value might go down anytime. The word stock is the most valuable term in the investment industry. With proper knowledge on how to trade a stock, one can make a huge earnings in a given time. Knowing how to play the stock market will definitely give you a good game to win.
Did you know that there are two main types of stocks? The two types are common and preferred. The first one is what most investors have in a public company, common stock may pay dividends, but dividends are not guaranteed. The amount of the dividend is not fixed or stable.
On the other hand, preferred stocks typically pay fixed dividends. The stock owners can rely on a set amount of income from the stock annually. Investors of preferred stock also stand at the front of the line regarding the company earnings.
For instance, if there is excess cash, it is properly distributed by dividend and paid to preferred shareholders first.
Defining the Stock Market, Stock Exchange, and Stock Index
Have you ever asked the difference between the stock market and stock exchange? Well, another term used is the stock index, and it is commonly mistaken with the others. Here’s what we have gathered in our research with one of the most reliable articles about this topic. The Motley Fool website has a simplified meaning to these commonly used terms.
- _A **stock market___ refers to the process and facilitation of investors buying and selling stocks with one another. *
- _A **stock exchange___ is an actual intermediary that connects buyers with sellers, such as the New York Stock Exchange. *
- A stock index is a numerical representation of a group of stocks that is used to track their collective performance.
How Does the Stock Market Work?
There is a plain and simple concept behind how the stock market really works if you think about it. It helps companies raise money to finance their operations by buying or selling shares of stock, and it creates sustainable wealth for individual investors.
Moreover, Nerdwallet says that the stock market works through a network of exchanges. Have you heard of the New York Stock Exchange or the Nasdaq? It’s one of the stock exchanges. Many companies or enterprises list shares of their stock on an exchange through a process called an Initial Public Offering or IPO. And then, investors purchase those shares, which enables the company to raise money to fund its business development and processes. The investors can then buy and sell these stocks. The stock exchange's role is to track the supply and demand of each company stock that’s showing on the list.
The law of supply and demand helps determine the price for each security or the range at which stock market participants are willing to buy or sell. Buyers bid, or the highest amount they’re willing to pay, which is usually lower than the amount sellers ask for in exchange. This difference is called the ‘bid-ask’ spread. For a trade to occur, there is a negotiation between the two participants: a buyer needs to increase his price, or a seller needs to lower the price. They need to meet halfway for the trade to be successful.
Image taken from Just F*ing Demo website
There is another popular trend of investment that aligns with trading stocks in the stock market. It’s foreign currency trading that is very popular online. Believe it or not, the stock market has very sensitive factors affecting its movement, such as world news headlines, just like what’s going on between Ukraine and Russia right now. People who have trading knowledge and experiences can smartly predict or forecast if the stock market will go up or down in a given time.
Image taken from Forex.com website
How Can You Start an Investment on the Stock Market?
Thinking about investing in the stock market can be a tough decision. It also requires proper knowledge and training on playing the game of this trade. Here are some of the basic tips to get you started when you are ready.
1. Decide the type of account you want to open.
They say there is an account investment for almost everything. Depending on your status, you can start with educational savings or even retirement savings. Whether you want a long-term or short-term investment, there is one that will surely fit your needs.
2. Choose the right online booker and create your account.
Opening a brokerage account can be the most crucial part of investing in the stock market. That is why before you start, you need to understand the different types of brokerage accounts that you can open. Forbes has a consolidated list of the featured investing products of March 2022. And it will give you an idea of what product you can choose.
3. Deposit money into your account.
Your account will be dormant unless you deposit money on it. You can also set up recurring deposits to make it easier for you to track and automate your earnings and investment over time.
4. Choose the right investment to start with.
As you know, it’s tough for someone who is just starting out. But, having the right knowledge about what you are about to go through will help you prepare to make the right decisions.
5. Find stocks to buy and be smart in trading them.
This is when you take a deep dive into the pool of investment processes. You carefully find stocks to buy and make sure you take care of their value. Be wise enough before you trade anything you have.
6. Don’t stop learning new and effective strategies.
Most investors or stock owners fail because they think ‘they know it all’ and stop learning. There is free training or tutorials online for traders and investors. In fact, you, too, can be an expert and offer financial management advice. You can even start your own training website with us now. Learn more and share more interesting ideas about the stock market.
Image taken from Strikingly website
Final Thoughts
The trading industry can be a bit scary, but with proper research, you can catch up on how it works. The stock market has played a significant role internationally. Most business owners, individual traders, and investors have made significant decisions that lead them to success or failure. Over time, many people rely on the stock market to raise funds for business and secure their future. It can be a long journey for someone trying to discover it. But, once you research well and get trained on how to invest in the stock market, you’re almost there. Just don’t stop learning and sharing best practices. It’s how we also do it at Strikingly – sharing the best web services to cater to our users.
