What is the Stockmarket and What Does it Do?
Perhaps you are thinking about doing some personal investing on the stockmarket. Well, that is fine but don't blindly jump in; you need to really understand how the stockmarket works before you can learn how to recognize a good stock to invest in. In this article I will briefly explain what stockmarkets actually do.
The 2 Main Functions of the Stockmarket
There are in fact two main and completely different functions that the stockmarket fulfills. One is the primary market and the second is called the secondary market.
The Primary Market
The primary market is when companies issue new shares and they are offered to the original shareholders or to the public. One way to understand the primary market - think of the analogy of a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer minus the dealer's mark-up. A similar scenario goes on in the primary market; the money raised by the new stocks goes to the company minus any costs.
Normally, companies offer new shares to expand; like constructing a new factory, to develop a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for possible higher profits.
The Secondary Markets
The secondary markets are where the public can sell and buy shares and stocks. With the car equivalence, we now consider a second hand car dealer. If you buy a second hand car from the dealer, none of that money goes 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 to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. Just as you can buy and sell a car, you are also free to buy and sell shares at will. This is the liquidity of the markets or the way to turn assets into cash. In fact, 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 key reasons for the markets to move and these are the irrational group approach of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - depression, inflation or government policies), and the technical factors (such as investment trends or the popularity of a product or industry.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You must take into consideration all of the factors as a whole and not just one factor if you want to take minimal risks. Learn and gain knowledge about the stockmarket before jumping in and you may make a better return on investment than merely keeping your money in a fixed interest security or savings account. - 23208
The 2 Main Functions of the Stockmarket
There are in fact two main and completely different functions that the stockmarket fulfills. One is the primary market and the second is called the secondary market.
The Primary Market
The primary market is when companies issue new shares and they are offered to the original shareholders or to the public. One way to understand the primary market - think of the analogy of a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer minus the dealer's mark-up. A similar scenario goes on in the primary market; the money raised by the new stocks goes to the company minus any costs.
Normally, companies offer new shares to expand; like constructing a new factory, to develop a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for possible higher profits.
The Secondary Markets
The secondary markets are where the public can sell and buy shares and stocks. With the car equivalence, we now consider a second hand car dealer. If you buy a second hand car from the dealer, none of that money goes 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 to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. Just as you can buy and sell a car, you are also free to buy and sell shares at will. This is the liquidity of the markets or the way to turn assets into cash. In fact, 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 key reasons for the markets to move and these are the irrational group approach of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - depression, inflation or government policies), and the technical factors (such as investment trends or the popularity of a product or industry.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You must take into consideration all of the factors as a whole and not just one factor if you want to take minimal risks. Learn and gain knowledge about the stockmarket before jumping in and you may make a better return on investment than merely keeping your money in a fixed interest security or savings account. - 23208
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posted by X - Men @ 12:47 AM
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