How Does The Stock Market Work?
A stock market, equities market, or bond market is an aggregate grouping of investors and lenders of financial securities, who collectively represent ownership interests in various companies; these can include securities registered on a public stock exchange like the New York Stock Exchange (NYSE) or a private company listing. These markets generally operate with a wide range of participants including individual investors, institutional investors, insurance companies, and government-sponsored enterprises. The exchanges differ from one country to another, but they generally have similar characteristics. A common feature among these markets is that they use a number of trading tools to facilitate the transfer of risk and value between the buyers and sellers.
Major stock exchanges include the New York Stock Exchange (NYSE) and the NASDAQ; both of which operate electronically. Stocks are traded in numerous exchanges, depending on the business or industry involved. The New York Stock Exchange trades the largest number of shares, giving it the label as the “commodity stock market”. It is also the most heavily traded marketplace by volume. The New York Stock Exchange trades both new and penny shares, with new penny shares being traded more frequently than shares on other exchanges. Over the past decade, the New York Stock Exchange had seen a steady increase in number of transactions.
There are several other stock exchanges besides the two that we have mentioned above. London Stock Exchange (LSX) and the NASDAQ also operate in a similar manner to the NYSE with respect to the listing of stocks and also to the trading of shares. However, unlike the NYSE, the NASDAQ does not restrict the types of investments that its members may make. Most large companies that trade on the NYSE also trade on the NASDAQ.
Different stock market exchanges offer differing degrees of accessibility to their stocks. For instance, the NYSE offers to its members restricted access to its indexes. These are the Dow Jones Industrial Average and the Dow Jones Transport Average. Between these two, more than four thousand companies trade on the New York Stock Exchange daily.
Because there are numerous stock exchanges in operation daily, anyone can invest in them. However, you need to be aware that when you trade, you are trading one of hundreds of thousands, if not millions of shares. Also, most experts would advise that you only trade in shares that you understand well and that you can hold for some time. This is because stock market trading can be quite dangerous. The potential losses can be high and the chances of gains small.
For investors, understanding how the stock market works can be very beneficial. In addition, the chances of making a profit when trading in shares is higher than investing in a traditional form of investing like bonds or real estate properties. Finally, there is no speculation, guesswork or emotions involved. The only decision that needs to be made is when to make investment decisions and how much should you invest.