Stock Market
What is Stock Market ?
The stock market broadly refers to the collection of exchanges and other venues where the buying, selling, and issuance of shares of publicly held companies take place. Such financial activities are conducted through institutionalized formal exchanges (whether physical or electronic) or via over-the-counter (OTC) marketplaces that operate under a defined set of regulations.
The stock market refers to public markets that exist for issuing, buying, and selling stocks that trade on a stock exchange or over-the-counter. Stocks, also known as equities, represent fractional ownership in a company, and the stock market is a place where investors can buy and sell ownership of such investible assets. An efficiently functioning stock market is considered critical to economic development, as it gives companies the ability to quickly access capital from the public.
How Does Stock Market Work ?
The reality is that investing in the stock market carries risk, but when approached in a disciplined manner, it is one of the most efficient ways to build up one's net worth. While the value of one's home typically accounts for most of the net worth of the average individual, most of the affluent and very rich generally have the majority of their wealth invested in stocks.1 In order to understand the mechanics of the stock market, let's begin by delving into the definition of a stock and its different types.
When you purchase a public company's stock, you're purchasing a small piece of that company. Because it's hard to track every single company, the Dow and S&P indexes include a section of the stock market and their performance is viewed as representative of the entire market.
You’ll usually buy stocks online through the stock market, which anyone can access with a brokerage account, robo-advisor or employee retirement plan. You don’t have to officially become an “investor” to invest in the stock market — for the most part, it’s open to anyone.
The stock market is regulated by the U.S. Securities and Exchange Commission, and the SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
You might see a news headline that says the stock market has moved lower, or that the stock market closed up or down for the day. Most often, this means stock market indexes have moved up or down, meaning the stocks within the index have either gained or lost value as a whole.
Investors who buy and sell stocks hope to turn a profit through this movement in stock prices.
This all may sound complicated, but computer algorithms generally do most of price-setting calculations. When buying stock, you’ll see the bid, ask, and bid-ask spread on your broker's website, but in many cases, the difference will be pennies, and won’t be of much concern for beginner and long-term investors.
Advantages of stock market
The ability of the market to generate the kinds of gains it does is the most essential component of investing directly in markets. Stock markets have always stood the test of time, rising in value over time, even though individual stock values fluctuate daily, according to historical data.
The fundamental goal of investments is to guarantee our future, but we must keep track of inflation regularly. The gains will be nil if inflation and the rate of return on investments are comparable. In an ideal world, the rate of return on investments would be higher than inflation.
Stocks are considered liquid assets since they can be easily converted to cash and have a large number of purchasers at any given time. The same cannot be said for all assets; some, such as real estate, are difficult to sell. It could take months to see a return on your home investment. It is, however, much simpler in the case of stocks.
Investors in the stock market can directly benefit from a thriving economy, and the value of their investments rises in lockstep with economic expansion.
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