How Does The Stock Market Work?

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How Does The Stock Market Work?

For the stock market to work there must be buyers and sellers in the market and they trade through the shares which have been previously issued by one or another investor. This buying of the shares represent the ownership of that particular company or the public corporation. The price for the stock reflects investor’s opinion of what the company’s earnings will be in future.

The stock market often acts like an auction house in which the buyers and sellers negotiate in a price and then make the trades. Sellers often ask the higher price for selling the shares so that he/she can get more profit on it and for the buyer side they bid the lowest price for buying it so that in future they will book more profit later. For a trade to initiate the buyer needs to increase its price and the seller need to decrease its prices.

The supply and demand help the price of the stock to determine at what price the security will be traded in exchange. The trade-in the stock exchange handled by the computer algorithms to do the calculations. The investors or traders buy the stock from the brokers not directly from the exchange. For this, there is some brokerage fee charged by the broker also. Companies get listed in the stock market through the process of Initial Public Offering (IPO). Investors purchase those share and help the company to raise the capital for the company.

Different Types of stocks

• Common Stock Shares
• Preferred Stock
• Custom Stock Shares
• Warrants

Benefits of trading in the stock market

1. Investment gains
By buying and selling the stocks it will provide the investment gains. It is the potential way to grow wealth by making investments in different investment options for securing the financial future.

2. Earning dividends
By investing in some stocks they also provide the facility of disbursement of dividends as soon as the company announces the quarterly results and earns a profit. It is Short term investments gains. Know More About: Dividends

3. Diversification
By allocating in different investment options it is another source of income by diversifying the allocation in different sectors. If anyone of the sector is in loss and other sectors make the profit then in the overall portfolio it will be profitable and advantage of diversification. Know More About: Diversification of Portfolio

4. Ownership
Buying shares from the company gives the investor the right of ownership in that company according to the holding of the shares by the investor. For this, the investors termed as shareholders and they receive the annual reports of the company to learn and also get the voting rights in the company.

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