How The Stock Market Works
Need to know how the stock market works? The stock market involves technical processes that one needs to understand before trying to invest some money in the industry. A general understanding about the stock market industry is required for one to be able to make a wise investment.
- The stock market offers an organized trading system involving stocks. Stocks refer to the shares one can invest in to become an eligible investor for a particular company. The rule is the more stocks one invests in, the more shares one gets. This process gives the stock buyer a piece of ownership of a particular company, which in turn entitles the stockholder a dividend from the profit that the company makes. Corporations offer different classes of shares with various benefits attached with each share.
- The stock market plays a major role in the distribution of capital from different investors to provide funds for the purpose of business expansion. Each stockholder gets to have a share of the corporate profits. The market for selling and buying stocks involves two divisions, namely the Primary and Secondary Markets. Investors get to buy a share of stock directly from the issuing company in the Primary Market through the securities of the Initial Public Offer (IPO) route. In the Secondary Market, stock holders get to buy and sell their shares among themselves, and the issuing corporation of the stock no longer has direct control in the stock exchange process.
- The stock market operates under government regulations. Among the popular public stock markets are the New York Stock Exchange (NYSE), NASDAQ (National Association of Securities Dealers Automated Quotation) and the TSE (Toronto Stock Exchange). A corporation needs to apply with the government in order to make an initial public offering (IPO) to share its stocks. The proceeds of the stock sold to various investors will then be utilized as capital for business ventures, and the profit the company makes will be distributed among its investors according to the number of their stock shares.