How Exactly Does the Stockmarket Work?
Perhaps you are thinking about doing some personal investing on the stockmarket. This could be a good strategy but don't start yet; your first task should be to learn all you can about the functions of the stockmarket so that you can make informed decisions about which shares to invest in. Below I will go over the main functions of the stockmarket.
The 2 Major Purposes of the Stockmarket
In fact, the stockmarket is divided into two distinct and different types of markets. The first is called 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. To understand the primary market - think of the comparison to a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer less the dealer's profit. A similar scenario goes on in the primary market; the money from the selling of the new stocks goes to the company less any additional expenses.
Companies normally offer new shares for expansion; like constructing a new factory, to develop a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in exchange for potential higher profits.
Secondary Markets
In the secondary market, the public can buy and sell shares and stocks. With the car comparison, we now consider a second hand car dealer. When you purchase a second hand car from the dealer, the money does not go to the manufacturer of the car. Instead, the second hand car dealer has bought a used car from the owner and has now sold it to another owner.
The secondary market therefore works by bringing together the buyers and the sellers. The same that 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. Remember that with no secondary market there would not be a primary market.
What Causes the Markets to Move?
Essentially, you could boil down the reasons that markets move to either the rational or the irrational factors. It is, of course, a lot more complicated than that. However, there are only three main reasons for the markets to move and these are the irrational group mindset of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - recession, inflation or government policies), and the technical factors (for example trends in investing or the attractiveness of an industry or product.)
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 all together 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 if you just kept your money in a savings account. - 23159
The 2 Major Purposes of the Stockmarket
In fact, the stockmarket is divided into two distinct and different types of markets. The first is called 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. To understand the primary market - think of the comparison to a new car dealer. You pay money to the dealer for your new car and this money goes to the manufacturer less the dealer's profit. A similar scenario goes on in the primary market; the money from the selling of the new stocks goes to the company less any additional expenses.
Companies normally offer new shares for expansion; like constructing a new factory, to develop a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in exchange for potential higher profits.
Secondary Markets
In the secondary market, the public can buy and sell shares and stocks. With the car comparison, we now consider a second hand car dealer. When you purchase a second hand car from the dealer, the money does not go to the manufacturer of the car. Instead, the second hand car dealer has bought a used car from the owner and has now sold it to another owner.
The secondary market therefore works by bringing together the buyers and the sellers. The same that 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. Remember that with no secondary market there would not be a primary market.
What Causes the Markets to Move?
Essentially, you could boil down the reasons that markets move to either the rational or the irrational factors. It is, of course, a lot more complicated than that. However, there are only three main reasons for the markets to move and these are the irrational group mindset of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - recession, inflation or government policies), and the technical factors (for example trends in investing or the attractiveness of an industry or product.)
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 all together 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 if you just kept your money in a savings account. - 23159
About the Author:
William Wilkie reviews personal finance products and services. Check out his website for the top Identity Theft Program and read the TrustedID Review.
posted by X - Men @ 5:50 AM
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