The stock market is the space in which company shares are bought and sold. The movements that take place in it condition the present and future performance of the different companies that participate in the stock market. Sometimes its operation is compared with that of a market, only, in this case, the financial products that are handled are currencies, bonds, debts, credits and derivatives.
Table of Contents
Operation of the stock market
To understand more fully how the stock market works, a number of important concepts must be taken into account:
- The stock market is a generic term. Throughout the world there are different exchanges on which entities and companies from specific markets are listed.
- Companies buy or sell shares in this space. The share price is set by the free market, that is, those who are willing to buy make an offer and those who want to sell decide whether or not to accept the proposal. This is known as stock trading.
- Stock brokers act as intermediaries between the sellers and buyers of the shares. It is enough for investors to inform about the markets in which they want to operate for the brokers to take care of the buying and selling process.
- The offers on the Stock Exchange are public. In this way, you will gain prestige and credibility, by providing a greater amount of information. From that moment, the private agent or the company can know the characteristics of the offer and the economic situation of the companies that have put it on the stock market.
- The information must remain current. In this way, potential investors will have the possibility to analyze whether the products on offer suit their interests. The feasibility of the offers can change significantly from one day to the next.
What is the stock market for?
The introduction of a company in the stock market is a good way of financing for those companies that are interested in expanding and do not have enough money to do so. For this, they have the possibility of issuing shares or debt on the stock market. A share will become part of the capital stock of the organization, so by creating more shares and issuing them they will be able to get capital from different people. For their part, by issuing debt in the form of bonds, they will be able to sell the company’s liabilities at a specific price and term.
The issuance of debt or shares by a company will help it to obtain liquid money that will be used for the subsequent investment in improvements, whether for the purchase of machinery, expansion of facilities, the construction of a new plant, etc.
On the other hand, there is the shareholder, who makes investments by taking hold of the company’s securities. You expect to get a regular dividend yield or return from selling that stock at a higher price. There is also the holder, who is an investor who, when acquiring a bond, expects to obtain periodic interest or a return at the end of the term.
The market where all these negotiations take place is the stock market. They receive the denomination of values since they imply a partial right of property on a company (actions) or on an obligation or title (bonds). It should be clarified that investments in shares are considered variable income due to the constant changes that the investor may perceive for dividends. On the other hand, investments in debt are called fixed income since the interest rates of these instruments are established in advance and the changes that could occur would be lower than in shares.
Investment and stock market training
Now that you know how the stock market works, we recommend that you learn how to learn to invest correctly to get the best returns. To do this, apart from finding a lot of useful information in our “Stock Market” category, you will also find a wide variety of courses on the stock market in the link that you will find below:
Probably wanna read:
- How to start investing: Do you want to invest and do not know how to start?
- The main sources of financing for a business
- Do you want to become a millionaire? These 10 tips will put you on your way to achieving it
