How the Stock Market Works_ A Comprehensive Guide for Beginners - Google Docs

1. HowtheStockMarketWorks:A ComprehensiveGuideforBeginners Thestockmarketisanintegralpartoftheworldeconomy,enablingindividualsandinstitutionstoexchangeownershipinterestsinpubliclylistedcompanies.Tonewbies,thestockmarket may appeartobecomplicated,butitissimplyamarketplacewhereinvestorsexchangestocks, bonds,andothersecurities.StockTutorwillsimplifytheessentialconceptsandtermsand provideabetterunderstandingofhowtoresearchandinvestinthestockmarketconfidently. WhatistheStockMarket? Thestockmarketisanarrangementbywhichbuyersandsellerstradestockinpubliclyowned corporations.Companysharesarewhatyouaresymbolicallyrepresentedasbeingifyouowna partofacompany,andifyoubuythem,youeffectivelyownaproportionofthecompany. When theyundertaketheriskofpurchasingstock,investorshopethecompanyprospers,hencethe worthoftheirsharesbecomesgreater. Thestockexchangeisnotoneentitybutagroupofdifferentexchangeswherestocksare traded.ThemostfamousexchangesaretheNewYorkStockExchange(NYSE)and the NasdaqintheUnitedStates.Allothercountriesalsohavetheirrespectivestockexchanges, includingtheLondonStockExchange(LSE)andtheTokyoStockExchange(TSE).

2. HowDoestheStockMarketWork? • Ifacompanywishestoobtainfundingtofuelitsactivities,itmayaccomplishthisbyselling sharesofstocktothepublic.AnInitialPublicOffering(IPO)isthenameoftheprocess.Withan IPO,thecompanysellspartofitsownershiptothepublicformoney,whichcansubsequentlybe usedtoexpandthebusiness. • Aftertheissuanceofshares,thesharesaresoldandpurchasedthroughthestockmarkets. Investorspurchaseshares,hopingforthevalueofthesharestobeappreciatedinthefuture. Shares'priceskeepchangingbasedonanumberoffactors,someofwhichinvolvethe performanceofthecompany,trendsinindustries,andevengeneralmarketperformances. • Thestockmarketworksontheprincipleofsupplyanddemand.Iftherearemorebuyersofa specificstockthansellers,thepriceincreases.Whentherearemorebuyersthansellers,the pricerises.Thisisonthebasisofbothfundamentalstothecompany(itsearningsreleases and managerialdecisions)andexternalfactors(e.g.,economicorgeo-politicaltensions). • TypesofStock • Therearetwogeneralkindsofstocksthatareavailableforinvestorstopurchase: • CommonStock:Themostwidespreadtypeofstockheldbymultipleindividuals.When youinvestincommonstock,youusuallyobtainvotingrightsforthecompanyatannual meetings.Youmayalsobeeligiblefordividendsifthecompanydistributesprofits to shareholders.Nevertheless,commonstockholdersareentitledlastinthecase of distributionofmoneywhenthecompanyliquidates. • PreferredStock:Preferredstockholdersrankaheadofcommonstockholdersinboth assetsandearnings.Theyusuallyarepaiddividendspriortocommonstockholders, yet theydonotenjoyvotingprivileges.Itmaybedesirableforinvestorswanting moresecureincomeintheformofdividends. • KeyPlayersof StockMarket • Thereareanumberofprincipalactorsinthestockmarket,eachplayingadistinctroleinthe process: • Investors:Institutionsandpartiesthatbuyandsellstocksforspeculativepurposes. Theyincluderetailinvestors(meandyou)andinstitutionalinvestors(suchaspension funds,mutualfunds,andhedgefunds). • Exchanges:Thesearewherethestocksareexchanged.Themostprominentones are theNYSEandtheNasdaq,wheresellersandbuyersmeettoexchangestocks. The exchangesofferguaranteethatthetradingisguidedandopen.

3. Stockbrokers:Specialistswhobuyandsellstocksforinvestors.Brokeragehouses employthemandcarryouttradesinexchangeforacommissionor fee. • MarketMakers:Marketmakersarecompaniesorentitiesthatarealwayswillingto purchaseandsellsharesatanytime,makingthestockalwaysindemand.Market makersassistinprovidingliquidityforthestockmarket. • Stock Market Indices • Stockindicesfollowthebehaviorofacollectionofstocksandserveasagaugeofoverall markethealth.Afewpopularindicesare: • TheDowJonesIndustrialAverage(DJIA):Itconsistsof30prominentU.S.firmsand servesasamaingaugeofthegeneralU.S.stockmarket. • TheS&P500:Measuresthemovementof500ofthelargestU.S.companies,covering awiderepresentationofthemarket. • TheNasdaqComposite:Trackstheperformanceoftechnology-studdedstocksandis mostreactivetothemovementoftechnologycompanies. • HowtoInvestintheStock Market • Fornewbies,thestockmarketcanbeintimidating.Butitcanbesimplifiedintosteps: • Learn:Takesometimetolearnbasicterminology,investmenttactics,andtherisks beforedivingin.Therearemanyonlineresources,books,andcoursesavailable to assistyouinbuildingyourknowledge. • EstablishClearObjectives:Knowyourinvestmentobjectivesbeforeinvesting.Doyou wantlong-termgrowthorquickprofits?Areyousavingforretirementoralarge purchase?Yourobjectiveswilldictateyourstrategy. • OpenaBrokerageAccount:Tobuyandsellshares,you'llneedtohaveabrokerage account.Therearemanyonlinebrokerswithlowfeesandusefullearningtools and platformsthataresimpletousefornewinvestors.Chooseonethatiswithinyourbudget andsuitsyourrequirements. • BeginSmall:Foranewcomer,itmakessensetobeginwithamodestamountofcapital whichyoudonotmindlosing.Thisway,youwillgettolearntheprocesswithout assumingtoomuch risk. • DiversifyYourPortfolio:Anotherbasictenetofinvestingisdiversification.Donothave allofyoursavingsinvestedinonestockorsector.Diversifyyourinvestmentsacross

4. varioussectors,firms,andevenclassesofassets(stocks,bonds,realestate,etc.)to limitexposuretodanger. • BePatient:Stockinvestmentistypicallyalong-termactivity.Stockpricescanchangein theshortrun,butinthelongrun,thetrendoftheoverallstockmarkethasbeenpositive. Bepatientandsticktoyourinvestment plan. • Risksofthe StockMarket • Althoughthestockmarkethasthepotentialtoyieldhighreturns,italsocomeswithdanger. Stockpricescanfluctuateunpredictably,andthereisalwaysariskofloss.Youshouldinvest onlythemoneythatyoucanloseandmaintainadiversifiedportfoliotomanagetherisk. • Thefundamentalsofstockmarketareanintegralpartofthefinancialmarketacrossthe world,givingscopetoinvestorstobuildwealthinthelongterm.StockTutorinformsyouof the fundamentalsofhowitworks,whattypesofstocksareavailable,andthemethods of investment;newinvestorscanstartinvestingwithoutanyapprehension.Remember,learn, ensurethatyoudefineyourgoalswellandbepatientwhenyouentertheexcitinggameof the stock market. SourceUrl :- https://medium.com/@stocktutor/how-the-stock-market-works-a-comprehensive-guide-for-beginners-1d57c6fb05f2