What does the Stockmarket Actually Do?
Maybe you are interested in doing a bit of personal investing on the stockmarket. This could be a good strategy but don't start yet; your first task should be to learn all you can about the functions of the stockmarket so that you can make informed decisions about which shares to invest in. Below I will go over the main functions of the stockmarket.
The 2 Core Functions of the Stockmarket
There are in fact two main and completely different functions that the stockmarket fulfills. The first is called the primary market and the second is called the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are obtainable to the original shareholders or to the public. To understand 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 minus the dealer's profit. This is what happens in the primary market; the money raised by the new shares goes to the company less any additional expenses.
Normally, companies offer new shares for expansion; like constructing a new factory, to develop a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in return for possible higher profits.
The Secondary Markets
In the secondary market, the public can buy and sell shares and stocks. With the car equivalence, we now take a second hand car dealership. When you purchase a second hand car from the dealership, none of that money goes to the manufacturer of the car. In its place, the second hand car dealer has bought a used car from the owner and then sells it on to a new owner.
The secondary market therefore works by bringing together the buyers and the sellers. Just as you are free to buy and sell a car, you can also buy and sell shares at will. This is the liquidity of the markets or the way to turn assets into cash. Remember that with no secondary market there would be no primary market.
What Causes the Markets to Move?
Essentially, you could boil down the reasons that markets move to either the rational or the irrational factors. But of course it is a lot more intricate than that. However, there are only 3 key reasons for the markets to move and these are the irrational group approach of the investors (swings of pessimism to optimism with regards to risks), the fundamental factors (such as inflation, depression or government policies), and the technical factors (such as trends in investing or the popularity of an industry or product.)
What moves the markets are important factors to consider both for long term and short term investing. You must take into consideration all of the factors as a whole and not just one factor if you want to minimize your risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23162
The 2 Core Functions of the Stockmarket
There are in fact two main and completely different functions that the stockmarket fulfills. The first is called the primary market and the second is called the secondary market.
The Primary Market
In the primary market, companies can issue new shares and they are obtainable to the original shareholders or to the public. To understand 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 minus the dealer's profit. This is what happens in the primary market; the money raised by the new shares goes to the company less any additional expenses.
Normally, companies offer new shares for expansion; like constructing a new factory, to develop a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in return for possible higher profits.
The Secondary Markets
In the secondary market, the public can buy and sell shares and stocks. With the car equivalence, we now take a second hand car dealership. When you purchase a second hand car from the dealership, none of that money goes to the manufacturer of the car. In its place, the second hand car dealer has bought a used car from the owner and then sells it on to a new owner.
The secondary market therefore works by bringing together the buyers and the sellers. Just as you are free to buy and sell a car, you can also buy and sell shares at will. This is the liquidity of the markets or the way to turn assets into cash. Remember that with no secondary market there would be no primary market.
What Causes the Markets to Move?
Essentially, you could boil down the reasons that markets move to either the rational or the irrational factors. But of course it is a lot more intricate than that. However, there are only 3 key reasons for the markets to move and these are the irrational group approach of the investors (swings of pessimism to optimism with regards to risks), the fundamental factors (such as inflation, depression or government policies), and the technical factors (such as trends in investing or the popularity of an industry or product.)
What moves the markets are important factors to consider both for long term and short term investing. You must take into consideration all of the factors as a whole and not just one factor if you want to minimize your risks. By learning and gaining knowledge about how the stockmarket works, before starting to trade, you will be able to make a healthier return on investment than merely keeping your money in a fixed interest security or savings account. - 23162
About the Author:
William writes about personal finance products and services. Check out his website for the top Identity Fraud Protection program from TrustedID.
posted by X - Men @ 5:52 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home