What Is Stock Market & How Does It Function? | Understanding The Basics

CFI Education

What Is Stock Market & How Does It Function? | Understanding The Basics

In this article, we are going to talk about Stock Market and how does it Work. Here is the step-by-step guide & Overview which will help to Understand the Basics of the Stock Market.

Simply put, the stock market is a marketplace people use to buy and sell stocks. The term stock market indicates the aggregated market that includes sellers and buyers of stocks of various companies. In other words, these stock holdings also refer to the shareholding or ownership of businesses.

If you purchase public company stock, it offers you a small percentage of ownership of the organization. However, it is a challenging task to track every company in the stock market. Therefore, stock indexes showcase a bigger picture of the whole market.

Article Highlights

How Does Stock Trading Work?
Stock Market Participants- Investment Banks/ Brokers/ Investors/ Traders
Stock Market Indexes
Bull & Bear Markets
What Is Short Selling
Analyzing Stocks
Stock Market Type Of Investment- Value Stocks & Growth Stocks

How does stock trading work?

The working technology of stock trading is straightforward. Suppose you want to buy some stocks of a company. So, you contact a broker who will pass your stock purchasing order to the market. Once both sellers and buyers get finalized, they negotiate the price. Thus, the stock trading completes.

The stock market acts through a network of stock exchanges. Since organizations list their shares on one such exchange to raise capital, investors purchase them.

Stock Market Participants – Investment banks/brokers, investors, traders

According to the Securities and Exchange Commission (US Regulator), a stock market includes various participants, like- brokers, investment banks, traders, and investors. Each stock market participant has separate functions and roles in keeping the market running smoothly.

Investment bank

Investment bankers are market participants who represent organizations in several capacities. For instance, one private company wants to become a public one through an IPO. The investment banker represents such companies by looking after whether these organizations meet the regulatory requirements of the market.

Broker

Brokers or stockbrokers are certified and licensed experts who buy and sell stocks on behalf of the investors. Since all investors do not bear the appropriate knowledge for trading securities, brokers act on their behalf. They study the market and buy or sell the shares on behalf of the investors. As they act as middlemen between the stock exchange and investors, you need to open an account with the broker to access the stock market.

Investors

If a business has the potency to thrive and become a successful venture, an investor purchases a required amount of equity for an extended period. They put their money in the companies to help them grow, and both the investors and company owners will have some profit.

Traders

Stock traders are the most vital participants of the stock market, as they buy and sell securities, either for themselves or for their investor clients. So, this clearly states that traders try to make profits by purchasing securities of a company or selling stocks.

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