What does the Stockmarket Actually Do?
Maybe you are interested in doing a bit of personal investing on the stockmarket. First, you really need to comprehend how the stockmarket functions before you can tell when to invest and in which type of shares; so do not just jump straight into the market. In this article I will briefly explain what stockmarkets actually do.
The 2 Core Functions of the Stockmarket
As you will see, there are 2 core and totally different functions that the stockmarket performs. One is the primary market and the other is the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are offered to the original shareholders or to the public. One way to comprehend the primary market - think of the comparison to a new car dealer. The money you pay the dealer for your new car goes to the manufacturer less the dealer's profit. A similar scenario goes on in the primary market; the money from the selling of the new shares goes to the company minus any costs.
Normally, companies offer new shares for expansion; like building a new factory, to develop a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in exchange for potential higher profits.
The Secondary Markets
In the secondary market, the public can buy and sell stocks and shares. With the car analogy, we now consider a second hand car dealership. When you buy a second hand car from the dealership, the money does not go to the car manufacturer. Instead, the second hand car dealer has paid for a used car from the owner and then sells it to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. The same that you are free to buy and sell a car, you can also buy and sell shares when you want. It is a way to turn assets into cash or the liquidity of the markets. In fact, with no secondary market there would be no primary market.
What Moves the Markets?
Basically, you could boil down the reasons that markets move to either the rational or the irrational factors. It is, of course, a lot more intricate than that. There are however only three key reasons for the markets to move and these are the irrational herd mindset of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - inflation, depression or government policies), and the technical factors (as an example - trends in investing or the attractiveness of a product or industry.)
It is necessary to know what moves the markets so that you can make better investing decisions both for short term and long term investing. You also have to take all of the factors into consideration all together and not just one factor if you want to minimize your risks. Learn and gain knowledge about the stockmarket before jumping in and you may make a better return on investment than if you just kept your money in a savings account. - 23210
The 2 Core Functions of the Stockmarket
As you will see, there are 2 core and totally different functions that the stockmarket performs. One is the primary market and the other is the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are offered to the original shareholders or to the public. One way to comprehend the primary market - think of the comparison to a new car dealer. The money you pay the dealer for your new car goes to the manufacturer less the dealer's profit. A similar scenario goes on in the primary market; the money from the selling of the new shares goes to the company minus any costs.
Normally, companies offer new shares for expansion; like building a new factory, to develop a new product line, or to refinance debt. This can be defined as the raising of capital by sharing the risk in exchange for potential higher profits.
The Secondary Markets
In the secondary market, the public can buy and sell stocks and shares. With the car analogy, we now consider a second hand car dealership. When you buy a second hand car from the dealership, the money does not go to the car manufacturer. Instead, the second hand car dealer has paid for a used car from the owner and then sells it to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. The same that you are free to buy and sell a car, you can also buy and sell shares when you want. It is a way to turn assets into cash or the liquidity of the markets. In fact, with no secondary market there would be no primary market.
What Moves the Markets?
Basically, you could boil down the reasons that markets move to either the rational or the irrational factors. It is, of course, a lot more intricate than that. There are however only three key reasons for the markets to move and these are the irrational herd mindset of the investors (swings of pessimism to optimism regarding risks), the fundamental factors (as an example - inflation, depression or government policies), and the technical factors (as an example - trends in investing or the attractiveness of a product or industry.)
It is necessary to know what moves the markets so that you can make better investing decisions both for short term and long term investing. You also have to take all of the factors into consideration all together and not just one factor if you want to minimize your risks. Learn and gain knowledge about the stockmarket before jumping in and you may make a better return on investment than if you just kept your money in a savings account. - 23210
About the Author:
William is a writer of personal finance services and products. Check out his website for the top Identity Theft Program from TrustedID.
posted by X - Men @ 7:16 AM
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