How Exactly Does the Stockmarket Work?
Possible, you are planning to start your personal investing on the stockmarket. First, you really need to comprehend how the stockmarket functions before you can tell when to invest and in which type of shares; so do not just jump straight into the market. In this article I will briefly explain what stockmarkets actually do.
The Two Core Functions of the Stockmarket
As you will see, there are 2 core and totally different functions that the stockmarket performs. One is the primary market and the second is called the secondary market.
The Primary Market
The primary market is when companies issue new stocks that are offered to the original shareholders or to the public. The best way to understand the primary market - think of the resemblance to a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer less the dealer's profit. This is what happens in the primary market; the money raised by the new stocks goes to the company less any additional expenses.
Normally, companies offer new shares to expand; like constructing a new factory, to extend a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for potential higher profits.
The Secondary Markets
In the secondary market, the public can sell and buy stocks and shares. With the car equivalence, we now consider a second hand car dealership. If you purchase a second hand car from the dealer, the money does not go to the manufacturer of the car. In its place, the second hand car dealer has paid for a used car from the owner and then sells it on to a new owner.
The secondary market therefore works by bringing together the buyers and the sellers. Just as you are free to buy and sell a car, you can also buy and sell shares at will. It is a way to turn assets into cash or the liquidity of the markets. Remember that with no secondary market there would not be a primary market.
What Causes the Markets to Move?
In essence, you could boil down the reasons that markets move to either the rational or the irrational factors. But of course it is a lot more intricate than that. However, there are only 3 main reasons for the markets to move and these are the irrational pack approach of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (for example inflation, depression or government policies), and the technical factors (as an example - investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You also have to take all of the factors into consideration all together and not just individual factors if you want to take minimal risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23221
The Two Core Functions of the Stockmarket
As you will see, there are 2 core and totally different functions that the stockmarket performs. One is the primary market and the second is called the secondary market.
The Primary Market
The primary market is when companies issue new stocks that are offered to the original shareholders or to the public. The best way to understand the primary market - think of the resemblance to a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer less the dealer's profit. This is what happens in the primary market; the money raised by the new stocks goes to the company less any additional expenses.
Normally, companies offer new shares to expand; like constructing a new factory, to extend a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for potential higher profits.
The Secondary Markets
In the secondary market, the public can sell and buy stocks and shares. With the car equivalence, we now consider a second hand car dealership. If you purchase a second hand car from the dealer, the money does not go to the manufacturer of the car. In its place, the second hand car dealer has paid for a used car from the owner and then sells it on to a new owner.
The secondary market therefore works by bringing together the buyers and the sellers. Just as you are free to buy and sell a car, you can also buy and sell shares at will. It is a way to turn assets into cash or the liquidity of the markets. Remember that with no secondary market there would not be a primary market.
What Causes the Markets to Move?
In essence, you could boil down the reasons that markets move to either the rational or the irrational factors. But of course it is a lot more intricate than that. However, there are only 3 main reasons for the markets to move and these are the irrational pack approach of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (for example inflation, depression or government policies), and the technical factors (as an example - investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You also have to take all of the factors into consideration all together and not just individual factors if you want to take minimal risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23221
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posted by X - Men @ 5:50 AM
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