how does the stock market work

Tag:Howdoesthestockmarketwork | how does the stock market work

Before you start investing in the stock market it is a good idea to ask yourself, "How does the stock market work?" The answer to this question is simple. Companies go public by offering a specific number of shares in their company to the public through the stock exchange. Investors then can use the stock exchange to buy and sell stocks of companies that they are interested in. While this basic description of how the stock market works is adequate enough to understand what the stock market is, to get a better understanding of how it actually works it will be important to learn about some of the terms that are commonly used when discussing the stock exchange including stock prices and market capitalization.you - start significantly investing outperforming in other the forms stock of market investment. it This is is a because good shares idea represent to a ask claim yourself on "How corporate does assets the and stock profits market which work?" tend The to answer grow to in this line question with is the simple. growth Companies of go the

The first term that you may hear when you start learning about how the stock market works is stock prices. Stock prices are the price that a specific stock sells for. This price is set by several market factors including the health of the economy, trading trends, spending trends, and financial or technical reports put out by a company or an independent third party. The next term that you may hear about is market capitalization. Market capitalization is the value of the company or the stock that is being offered. To calculate the market capitalization of a company, or stock, simply use this formula: The number of outstanding shares X the price of the stock = market capitalization of the company.does assets the and stock profits market which work?" tend The to answer grow to in this line question with is the simple. growth Companies of go the public economy by as offering a a wh specific num

After you learn about the basics features of the stock exchange you will next need to learn how to buy and sell shares. To buy a stock you will need to establish some kind of investment account. In most cases you will open an investment account with a stock broker that works at a local firm. However, today you can also open an online investment account and make trades without the help of a stock broker. After you have set up your account you will need to fund it before you can make a purchase. Once your account is funded you will be able to enter your order for a stock purchase. When you are ready to sell your shares you will either tell your stock broker that you want to sell X number of shares of Company A, or you will need to enter a sell order via your online investment account.

More How does the stock market work FAQ

A. The stock market, also called the equity market, is a way for companies to raise money from those with cash to invest. Investors make money (hopefully) from buying shares in two ways - the income from dividends that the company pays to shareholders and from the capital gain on shares, realised when shares are sold at a higher price than that at which they were bought. efore run you - start significantly investing outperforming in other the forms stock of market investment. it This is is a because good shares idea represent to a ask claim yourself on "How corporate

Q. So what's the FTSE 100?

A. The market is simply the sum total of all the shares traded, and is represented by stock market indices: for example in the UK, the FTSE (Financial Times Stock Exchange) 100 (roughly the largest 100 companies) and the FTSE All-Share index (practically the entire market); in the USA, the Dow Jones Industrial Average and the Nasdaq index (mainly comprised of 'new economy' technology stocks).

Q. What about individual investors?

A. Despite the recent trend towards dabbling in the market, it is still far from a collection of small investors. Only 16% of UK shares were held by private individuals in 2000, the rest were held by institutional investors, such as insurance companies, pension funds, investment trusts and other businesses, both domestic and foreign. These institutional investors often deal in large numbers of shares and can influence the price of a company's shares with a single trade.

Q. How do share prices rise and fall?

A. Prices rise and fall for a number of reasons:

Factors specific to the firm - These are, of course, the perceived prospects of the company, particularly in delivering growth in profits and paying a satisfactory dividend to shareholders. in other the forms stock of market investment. it This is is a because good shares idea represent to a ask claim yourself on "How corporate does assets the and stock profits market which work?" tend The to answer grow to in this line question with is the simple. growth Companies of go the public economy by as offering a a wh specific num

Analysts make recommendations about whether particular companies are likely to be a sound investment. Changes in these recommendations, for better or worse, can significantly influence the price of a stock. The company's own news releases are closely monitored. Most large companies report their figures each quarter, and any change in the expected fortunes of the company will be reflected in the share price. Recently there have been a spate of 'profit warnings' - companies informing their shareholders and the market that profits will be lower than expected - sometimes causing quite sharp price falls.

General market factors - Economic news often has an immediate effect on the stock market. Broadly speaking, economic growth is seen as good for equities since higher growth leads to higher corporate profits. Therefore, any positive news, such as lower unemployment or increased output, is likely to be seen as good for share prices. However, inflation is the enemy of the investor, and positive economic news will not be welcomed by the markets if it is seen to imply increased inflationary pressures.

An increase in interest rates is usually bad for equities as bank accounts and bonds pay higher rates - both are alternative uses of investors' funds. Also, higher rates are often linked with a slowdown in economic growth, probably hitting profit growth. Again, however, it is difficult to generalise, as a rate rise to quell inflation would be seen as a good move by the equity market. tock of market investment. it This is is a because good shares idea represent to a ask claim yourself on "How corporate does assets the and stock profits market which work?" tend The to answer grow to in this line question with is the simple. growth Companies of go the public economy by as offering a a wh specific num

News affecting a large or influential company will often affect similar companies. For example, the recent announcement of redundancies in Marconi's plants caused a fall in other companies in the IT sector.

Q. So is the market generally predictable?

A. Up to a point, bearing in mind the factors discussed above. However, markets are not always rational and sometimes the herd mentality takes over. We have just witnessed one of the greatest ever stock market 'bubbles' with the rise and fall of the dot.com companies. Many of these are now members of what's called the '90 per cent club': shares that have lost over nine tenths of their value.

Generally speaking, however, share prices tend to rise over the long run - significantly outperforming other forms of investment. This is because shares represent a claim on corporate assets and profits, which tend to grow in line with the growth of the economy as a whole.

Source:http://www.theanswerbank.co.uk/Article1426.html

Spread The Word
del.icio.us it Digg this Furl Reddit Yahoo! this!
StumbleUpon Google Bookmarks Live Favorites Technorati

Basket-Work Market, Axoum (Axum) (Aksum), Tigre Region, Ethiopia, Africa List Price:$25.00 Our Price :$24.99	Women in Basket-Work Market, Axoum (Axum) (Aksum), Tigre Region, Ethiopia, Africa List Price:$25.00 Our Price :$24.99	Binh Tay Market, Vietnam List Price:$40.00 Our Price :$39.99

Quincy Market, Faneuil Hall, Boston, MA List Price:$124.99 Our Price :$124.99	Quincy Market, Faneuil Hall, Boston, MA List Price:$150.00 Our Price :$149.99	Quincy Market at Christmas, Boston, MA List Price:$150.00 Our Price :$149.99


	Master Power Trading Self-Hypnosis CD (Audio)
	Price:$29.95 1 New available