The stock market has fascinated people all through the years. Many have made fortunes, others have lost them investing and trading on the stock market. But what constitutes the stock market and how does it work?
Many countries have their own stock exchanges where one can buy and sell shares for company stocks, options and bonds that trade in that particular market. The US stock market is the most volatile of them all, where traders and brokers perform millions of transactions every day. The most common exchanges in the US stock market are the New York Stock Exchange, Nasdaq and the American Stock Exchange.
The Price
The stock market is a place where people, either on behalf of their clients, their organizations, or themselves, bid to buy a number of shares of a particular stock at a specific price. On the other side, another set of people asking to sell the same stock for a different price. These are technically called the 'bid' and the 'ask' price. When a price from the bidding side agrees with a price from the asking price, a trade is performed. In heavy volume transaction stocks, the difference between the 'bid' and the 'ask' price is marginal.
Why does the stock market fluctuate?
The answer to this is the variation between the supply and demand of the stock in question. In simple terms, when a particular stock is demanded heavily and the supply is short, the share price for the stock goes up since people are ready to buy that stock with a higher price than the current price, and people who want to sell are ready to wait and sell at higher prices.
When the reverse happens, people want to get rid of the stock but there are not enough people ready to meet the selling volume on the other side. As a result of this, the price goes down since people are willing to sell the stock at lower prices than the current price, and people who want to buy are ready to wait for the stock to go lower. The volume and quantity by which this happens relies heavily on the number of shares demanded against the number of shares supplied and the level of aggressiveness buyers and sellers (also known as bulls and bears) are buying and selling their stocks.
Shares Ownership
Once a number of shares are owned, as a result of a stock market transaction, these shares can be kept for a specified amount of time. This time can be years, months, weeks, days or even minutes. This depends on whether the shares have been bought for a long term investment (years and months), short term investment (weeks and days), or as a trading scalp, which normally lasts for hours, minutes, and sometimes even just a few seconds.
When entering the stock market, the first question one needs to ask is whether he/she wants to be an investor or a trader. This depends on whether one is looking for a long-term commitment or a short one. While investing in the stock market can be controlled quite easily, requiring only limited amount of knowledge, trading, on the other hand, is quite a different ball game requiring much more knowledge and skill to perform and master.
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