UNDERSTANDING STOCK MARKETS FOR DUMMIES. [Beginners Guide]
In the society, people seek for various means to make a living. It is quite important for a person to be involved in a particular activity to earn a living as it is believed that there is food for a lazy man. The bottom line is that a man has to be involved in a particular activity to eat. There are a thousand and one ways to make a good cash and lively comfortably. A particular means is by being involved in the stock exchange.
What is stock exchange?
Stock exchange is an exchange where traders and stock brokers purchase and sell bonds, shares of stock, and such other securities. Securities that are traded include stocks issued by unit trusts, listed companies, bonds, pooled investment products and derivatives. It should be known that stock exchange is carried out in a stock exchange market.
How does the stock market function?
The stock market is basically divided into 2 sections viz a viz:
- Primary market: This is a market where new issues are sold for the first time via initial public offerings (IPO).
- Secondary market: This is a market where all other trading occurs. The participants involved in trading in this market are individual and institutional investors. Companies grow by making use of money that was discovered their IPO. However, they would be unable to receive funds from buying and selling of their shares once their stocks begin to trade.
Institutional investors are known to be the main purchasers of shares from investment banks. In most cases, the amount of shares that are issued and the worth of the company are used n determining and ascertaining the IPO’s opening stock price. Companies share their earnings and assets to the public because of money. There are basically two ways by which companies raise money. It is either they borrow money or sell stock. Companies prefer to sell their stocks as they do not have to pay back borrowed money. Furthermore, the risk involved in the carrying out the course of business by the company would be shared among the investors
Is the stock market important?
The stock market is important as it gives room for a company to raise money by offering its corporate bonds and shares. It gives room to investors to be involved in the financial achievement of a company, making money via dividends.
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