Stock markets are the places where sellers and buyers meet and decide trading prices. Any company can make initial public offerings, and thus its shares become public and can be traded on the stock market. The stock market traditionally refers to a physical market with trading rooms called stock exchanges. However, as the technology evolves day after day, the “virtual” stock markets have become more and more popular, and nowadays most of the trading is carried out through computers or even phones and smart devices.
Historically, stock markets have first appeared in Europe, more than three centuries ago, in commercial capitals such as London and Amsterdam, but these markets were close to bond markets in the first place. Stocks then began to appear in the US as well, and the Philadelphia Stock Exchange may be the first real exchange in America that still works today. The New York Stock Exchange was established in 1792 by a group of brokers, which is now called the Wall Street Stock Exchange, the most powerful stock exchange in the world. It represents the heart of the financial industry in the United States and around the world, and its name is also associated with events that contributed to the economy of the modern world.
How Stock Markets Work
The main idea is that the share price on the stock market is determined through an auction process, in which buyers and sellers place their selling and buying offers. The offer is the price someone offers to buy, and the demand is the price someone offers for sale. When the two parties agree, the transaction is made.
There is always a group of experts in the stock markets called “market makers”, who adjust the offers of sale and purchase at a time when eager buyers and sellers are unable to conclude deals between themselves. The spreads are the differences between the prices of supply and demand, and the larger these differences, the more liquidity in the market.
Stocks are traded on major exchanges such as the New York Stock Exchange, the London Stock Exchange and the Tokyo Stock Exchange. The stock exchanges facilitate buying and selling of stocks, serve to protect investors from financial fraud and maintain the functioning of the exchange market. Stock exchanges are regulated by government agencies such as the Securities and Exchange Commission in the United States.
There are two basic types of equity investors
Investors in value: They usually invest in companies that have shown a consistent level of profitability in the long run and provide regular income for profits. Investment in value helps to avoid risk, although value investors usually seek to buy a stock when they see its price as a good deal for a low price.
Investors in growth: They invest in companies with high and exceptional growth leaps, with the aim of trading the biggest rise in the share price. They are usually less willing to risk investing in relatively small firms and are less concerned with the income distribution. This type of stock investor would prefer to buy technology stocks, for example, because of their high growth potential.
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