How the stock market works

The stock market seems like a complicated beast and for you to succeed at trading in such a market you need the help of an expert.

 

But this market is not so complicated as it seems

 

In a stock market, tons of money are made and lost daily.

 

The New York stock exchange trades each security for over $169 Billion a day.

 

The stock market is like any other market where goods are bought and sold, what makes a difference is that is the securities (ex: stocks, bonds, real estate etc) that are bought and sold in the stock market.

 

When buying a stock, you are buying a small part of a company and the transaction effects your online accounts

 

So, for example, if you buy a portion of Google stocks then you are buying a part of the company which allows you to become a part owner of the company.

 

Things that happen when buying a company’s stock:

 

You as the investor set the price at which you want to buy a share and state the number of shares you want to buy

 

Get a broker who will connect you to a shareholder of that company’s stock who will sell such quantity of shares at that price

 

once the broker finds the seller, he then facilitates the transaction and the success of such transaction will attract a commission to the broker’s account.

 

They may charge broker’s services for 20 dollars per share and millions of transactions happen daily.

 

Why stocks move up and down

 

Down movement: stocks fall when sellers selling sell at a lower price because of:

 

negative investment report and company’s bad news so sellers sell at lower prices to protect themselves from expected losses.

 

For Example: where a firm has been facing a streak of losses owners may want to prevent further losses by selling their stocks (ownership) even at a lower price

 

Up movement: stocks rise when buyers buy at a high price when they feel optimistic about the company which may be because of:

 

Good news about the company, ex: Rolls Royce stocks rise when the company launches a new car (it is good news)

 

If people are optimistic about the company, the stocks rise and if they are pessimistic about the company, the stocks may fall.

 

Investors feeling about a company's stock drives the stock price

 

 

Source: Isaac Olawuyi