How Does The Stock Market Work In Simple Terms

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How Does the Market Work?

The stock market is a place where investors and traders buy and sell public companyes shares of stocks. It's a place where companies issue shares of stocks for trading. Where investors and traders trade company stocks with each other on the stock exchange.

How The Market Works

When you buy public companies stock you buy a small piece of that company. It means you are the owner of a small part of that company. The stock market works through the process called initial public offering (IPO) investors and traders buy those shares that allow companies to raise their capital to grow their business. Investors and traders can then buy and sell these stocks themselves.


Buyer offers a “bid” the highest price they are willing to pay for the stock.The seller “ask” the minimum price they want to sell their stocks. “Bid” price means buyer offer. “Ask” price means seller offer. This difference is called bid-ask spread, a lower spread is good for traders and investors.

The (SEC) u.s securities and exchange commission and stock market regulates mission to protect traders and investors maintain fairness from market manipulation and insider trading.


What Is The Purpose Of The Stock Exchange?

The purpose of the stock market is to provide a place where anyone can buy and sell big companies' ownership and also help companies to grow and create more jobs and raise their capital to work properly through (IPO) initial public offering. Each stock exchange tracks the supply and demand of the listed stocks. The market supply and demand help to determine each stock price at the level at which stock market participants , investors and traders are willing to buy and sell. Stock price changes based on supply and demand when many investors and traders offers bidding for buying stocks based on good news, earning report stock price goes up the same when market participant investors and traders sell their stock then share price goes down.


How Investors And Traders Make Money

There are two main ways to make money in the stock market.

No:1 Capital gain when you buy a stock over the period stock value increases. For example you buy stock at $100 and you sell at $150 you make $50 profit this is called capital gain.

No:2 Dividend payments are paid by the company when you are a shareholder. If a company issues $1 dividend per share you have 100 shares of that company you will receive $100 from this company this is called dividend.

Conclusion

Learning how does the stock market work is important wherever you are investor or trader stock market is place where companies raise capital and investors and traders have opportunity to buying small part of that companies and make some profit from there success through the process called IPO initial public offering this process allow investors and traders buy and sell Shares on the stock exchange.

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