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What is stock market and how it works

   How Stock market works ?

What is stock market and how it works

What is stock market?

A stock market is a marketplace where stocks (also known as equities or shares) of publicly traded companies are bought and sold. When you buy a stock, you own a piece of the company represented by that stock. The value of a stock can go up or down based on a variety of factors, including the company's financial performance, investor sentiment, and overall market conditions.

The stock market provides a way for companies to raise capital by issuing and selling stocks to the public. It also provides a platform for individuals and institutions to invest in companies by purchasing stocks. The stock market is typically seen as a barometer of a country's economic health, as stock prices tend to rise when the economy is growing and fall when the economy is in decline.

Some of the most well-known stock markets include the New York Stock Exchange (NYSE), the NASDAQ, and the London Stock Exchange (LSE).

There are several types of stock markets, including:

Primary Market: This is where companies issue new shares and raise capital for the first time. Investors buy shares directly from the issuing company.

Secondary Market: This is where existing shares are bought and sold among investors. The most well-known examples of secondary markets are stock exchanges like the NYSE and NASDAQ.

Over-the-Counter (OTC) Market: This is a decentralized market where stocks are traded through a network of dealers rather than on a centralized exchange. Stocks traded in the OTC market are often referred to as "penny stocks" because they are usually small companies with limited trading volume and high volatility.

Regional Stock Market: These are smaller, localized stock markets that operate in a specific geographic area. They typically trade stocks of companies that are based or have significant operations in that region.

Emerging Markets: These are stock markets in developing countries that offer investment opportunities in the fastest growing economies.

International Stock Market: This type of market allows investors to buy and sell stocks of companies based in other countries. The largest international stock market is the Euronext, which operates in several European countries.

The stock market operates as a marketplace where stocks are bought and sold between investors. Here's how it works:

  • Company Issuance: A company can raise capital by issuing new shares of stock and selling them to the public. This is known as an initial public offering (IPO). Once the company has gone public, its shares are traded on a stock exchange.
  • Trading: Investors can buy and sell stocks through a broker. When an investor wants to buy a stock, the broker will search for a seller who is willing to sell the stock at the desired price. If a match is found, the trade is executed, and the stock is transferred from the seller to the buyer.
  • Stock Prices: The price of a stock is determined by supply and demand. When more people want to buy a stock than sell it, the price will go up. Conversely, if more people want to sell a stock than buy it, the price will go down.
  • Market Indicators: The stock market as a whole is often measured by a market indicator, such as the S&P 500 or the Dow Jones Industrial Average. These indices are calculated by taking the average of the prices of a selection of stocks and provide a snapshot of the overall performance of the stock market.
  • Dividends: Some companies pay dividends, which are a portion of their profits paid out to shareholders. When a company pays a dividend, the stock price will typically decrease by an equivalent amount, reflecting the fact that the company has less cash on hand.

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