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How does the stock market work?

2007-04-14 05:04:25 · 10 answers · asked by exceptionallyexceptional 2 in Business & Finance Other - Business & Finance

10 answers

The term 'the stock market' is a concept for the mechanism that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly 'over-the-counter').

The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together. The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. European examples of stock exchanges include the Paris Bourse (now part of Euronext), the London Stock Exchange and the Deutsche Börse.

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals.

Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange is a physical exchange, where much of the trading is done face-to-face on a trading floor. This is also referred to as a "listed" exchange (because only stocks listed with the exchange may be traded). Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method known as "open outcry": the current bid price is the highest amount any buyer is willing to pay and the current ask price is the lowest price at which someone is willing to sell; if there is a spread, no trade takes place. For a trade to take place, there must be a matching bid and ask price. (If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time.) Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is a significant amount of direct human contact in this process, computers do play a huge role in the process, especially for so-called "program trading".

The Nasdaq is a virtual (listed) exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer provides a bidding price. However, buyers and sellers are electronically matched. One or more Nasdaq market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.

The Paris Bourse, now part of Euronext is an order-driven, electronic stock exchange. It was automated in the late 1980s. Before, it consisted of an open outcry exchange. Stockbrokers met in the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and Nasdaq and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions.

Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees (they then went to 'negotiated' fees, but only for large institutions).

However, corporate governance (at least in the West) has been greatly affected by the rise of institutional 'owners.'

2007-04-14 09:50:53 · answer #1 · answered by selvanayagams 2 · 3 0

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. The other type of exchange is virtual, composed of a network of computers where trades are made electronically.

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, reducing the risks of investing. Just imagine how difficult it would be to sell shares if you had to call around the neighborhood trying to find a buyer. Really, a stock market is nothing more than a super-sophisticated farmers' market linking buyers and sellers.

2014-06-30 21:47:50 · answer #2 · answered by Anonymous · 0 0

If you're a newbie, buy blue chip shares. It's a good place to start, coz they won't let you down. Or if they do, they take everyone else down with them so you won't be alone! Check out more at https://theproduct.rocks/stock-market

If you want shares for income generation, i suggest you look at things like trusts, where they pay distributions about 4 times a year. They generally will appreciate, though it usually takes a while :D

If you want a cheap quick (unguaranteed) fix, speculative shares! This means el-cheapo mining shares where they haven't actually found anything yet, but when they do... ka-blam-mo! These cost peanuts, and usually come up with nothing, but it's somewhere to chuck any spare dosh you might have :)

Oh, one more thing - if you expect the bank interest rate to rise in your country anytime soon... don't jump into the market. USUALLY there's an inverse relationship between interest rates and the stock market performance.

2015-02-08 01:06:39 · answer #3 · answered by Madeline 3 · 0 0

Stock market is a market where you can buy and sell the stocks. It's work with a central system,where are a people can buy and see there stocks with a lot. Also you can see on http://www.thinkingalpha.com/.
In here you'll get best article to know in details about stock market.

2015-10-16 07:23:37 · answer #4 · answered by Melesha 2 · 0 0

It is just a place were traders (Buyers and seller) exchanges stocks for cash. Getting into stock trading is very easy but making money is really challenging. We can make money buy identifying direction of the particular stock.
There are two type of analysis to forecast market price
Fundamental Analysis - Detailed study of stock (Practically not possible by retail traders or Public)
Technical Analysis - Detailed study of market (It is relevent but it is more art than science)

Coming back to you Question?
Like any other market, I works because of Demand and Supply..

2014-01-09 18:06:22 · answer #5 · answered by Anonymous · 0 0

A stock exchange facilitates stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. India's premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.

2015-04-08 18:40:57 · answer #6 · answered by ? 3 · 0 0

That's kind of a loaded question, but here goes. On a basic level, the stock market is a way for someone to buy or sell a part ownership in a business. It's also a way for companies and governments to borrow money.

You can buy or invest in a company by buying the company's stock. By owning a share you may get paid a dividend (which is just the company paying out it's profits to the owners) and your share of the company can go up or down in value.

2007-04-14 05:38:32 · answer #7 · answered by Barney G 1 · 2 1

Penny stocks are loosely categorized companies with share prices of below $5 and with market caps of under $200 million. They are sometimes referred to as "the slot machines of the equity market" because of the money involved. There may be a good place for penny stocks in the portfolio of an experienced, advanced investor, however, if you follow this guide you will learn the most efficient strategies https://tr.im/4ed13

2015-01-25 02:49:27 · answer #8 · answered by Anonymous · 0 0

Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. You've probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other.

2015-03-10 23:58:40 · answer #9 · answered by Ruchi 1 · 0 1

This is a very broad topic and can't be summarized in one answer. My suggestions are just visit you tube for various tutorial videos which give you basic knowledge then come here and ask specific questions.

2015-02-09 23:52:32 · answer #10 · answered by Bilal 2 · 0 1

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