How Stock market works?

What is the Stock Market?

The stock market, often referred to as the equity market, is a marketplace where investors buy and sell ownership stakes (shares or stocks) in publicly-traded companies. It enables businesses to raise capital for expansion, research, and other purposes by issuing shares to the public. Investors, on the other hand, can potentially profit from buying shares in these companies as their values increase over time.

Here are the fundamental components that drive the stock market:

Stock Exchanges: Stocks are traded on organized exchanges, with the most prominent ones being the New York Stock Exchange (NYSE) and the Nasdaq in the United States. These exchanges provide a regulated platform for buying and selling shares.

Publicly Traded Companies: Companies go public by issuing shares, allowing them to raise funds from the public. When you purchase shares in a company, you essentially become a part-owner of that business.

Investors: Individuals and institutions, such as mutual funds, pension funds, and hedge funds, buy and sell stocks. They do so with the expectation of earning profits through capital appreciation and dividends.

How Stocks are Traded

Stocks are bought and sold through a system of brokers, which act as intermediaries between investors and the stock exchanges. The process involves several steps:

Opening an Investment Account: To start trading in the stock market, you need to open a brokerage account. This account is where you deposit funds to purchase shares and receive the proceeds of your sales.

Placing Orders: You can place different types of orders, including market orders, which buy or sell a stock at the current market price, and limit orders, which specify the price at which you want to buy or sell a stock.

Matched Orders: Stock exchanges match buy and sell orders. When a buyer is willing to pay the same price as a seller's asking price, a trade is executed.

Settlement: After a trade is executed, the shares and funds are transferred between the buyer and the seller, and the transaction is settled.