What is the Stockmarket and What Does it Do?
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. In this article I will briefly explain what stockmarkets actually do.
The 2 Core 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 other is the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are obtainable to the existing shareholders or to the public. One way to comprehend the primary market - think of the resemblance to a new car dealer. When you buy a new car, the money you pay the dealer goes to the manufacturer minus the dealer's profit. This is what happens in the primary market; the money from the selling of the new shares goes to the company minus any costs.
Normally, companies offer new shares to expand; like building a new factory, to extend a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for potential higher profits.
Secondary Markets
The secondary markets are where the public can sell and buy shares and stocks. With the car equivalence, we now take a second hand car dealership. If you buy a second hand car from the dealer, none of that money goes to the car manufacturer. In its place, the second hand car dealer has paid for a used car from the owner and has now sold 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 when you want. This is the liquidity of the markets or the way to turn assets into cash. In fact, without the secondary market there would not be a primary market.
What Moves the Markets?
Essentially, the reasons that markets move can be boiled down to either the rational or the irrational factors. It is, of course, a lot more complicated than that. There are however only 3 main reasons for the markets to move and these are the irrational pack approach of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (as an example - recession, inflation or government policies), and the technical factors (as an example - investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for long term and short term investing. You also have to take all of the factors into consideration as a whole and not just individual factors if you want to take minimal risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23311
The 2 Core 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 other is the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are obtainable to the existing shareholders or to the public. One way to comprehend the primary market - think of the resemblance to a new car dealer. When you buy a new car, the money you pay the dealer goes to the manufacturer minus the dealer's profit. This is what happens in the primary market; the money from the selling of the new shares goes to the company minus any costs.
Normally, companies offer new shares to expand; like building a new factory, to extend a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in return for potential higher profits.
Secondary Markets
The secondary markets are where the public can sell and buy shares and stocks. With the car equivalence, we now take a second hand car dealership. If you buy a second hand car from the dealer, none of that money goes to the car manufacturer. In its place, the second hand car dealer has paid for a used car from the owner and has now sold 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 when you want. This is the liquidity of the markets or the way to turn assets into cash. In fact, without the secondary market there would not be a primary market.
What Moves the Markets?
Essentially, the reasons that markets move can be boiled down to either the rational or the irrational factors. It is, of course, a lot more complicated than that. There are however only 3 main reasons for the markets to move and these are the irrational pack approach of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (as an example - recession, inflation or government policies), and the technical factors (as an example - investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for long term and short term investing. You also have to take all of the factors into consideration as a whole and not just individual factors if you want to take minimal risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23311
About the Author:
William Wilkie writes about personal finance products and services. Visit his site to learn about the best Identity Theft Program from TrustedID.
posted by Mr. Forex at
3:59 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home