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In the past, you might have heard about investing in the stock market, and for a good reason. Stock investing is one of the most satisfactory ways to generate a high income with relative ease.
If you are already thinking of making your first investment, you probably have already set clear expectations in mind. However, if you genuinely want to make the most out of the experience, it is highly recommended that you give yourself the chance to understand the stock market system’s inner workings.
To make the process more manageable, we have compiled some essential information you should know beforehand.
How does it work
For starters, let’s define what a stock is.
A stock itself represents a small amount of ownership over a given business. If you were to buy one, said business’s success would be linked to yours as well.
It is also worth mentioning that it is common for companies to go public in the stock market, meaning that absolutely anyone can buy their stocks. Taking this into account, your possibilities for stock investments are always vast and open.
Now, how are they marketed?
Stock markets are an assembly of stock buyers and sellers who ease their trading processes, usually in a digital medium. The market itself is open to the public, and any investor can access the market both as a buyer and a seller without any issue.
The way it all comes together is pretty straightforward, usually being done via your broker’s website and as comfortable as clicking the “buy” button.
Where do the stock prices come from?
As with many other prices in any given market, their respective supply and demand always determine stock prices.
Think of it as an auction. If there’s a specific business that has got the interest of several investors, they’ll want to get their hands on some of their stocks as quickly as possible.
Any investors who own stocks in that same business could ask for any high price, and some would still buy them. As long as there’s a demand, the amount of people buying will always be larger than that of those selling, so elevated prices are of no concern.
On the other hand, if there’s no demand, the number of buyers will be little to none. If the stock owner with no need is concerned with selling it, then the only option will be to sell it at a low price to get any potential parties’ attention.
If the idea of ever being unable to sell any stock you eventually own comes to mind, there’s no need to worry at all! Market makers got your back!
To ensure that there’s always an active market in place, entities known as market makers work as intermediaries that connect any potential buyers with a potential seller. If you were to need to sell a stock with no luck, they could help you by listing and holding your shares to match you with your perfect buyer. The process is so easy and reliable that you’ll find your buyer in no time at all.
What does buying a stock implicate
An entity that is licensed to allow stock trades between investors is known as a broker. It works as a kind of middle man between you and another investor, so to speak, and it could either be an actual person or an online service.
The process of buying a stock is pretty straightforward. You use your broker to make public that you are interested in purchasing a specific amount of shares. Now, a potential seller can easily find this information and proceed with their part of the transaction. That’s it. You have now bought shares, and they’re delivered to you electronically.
How is the stock market tracked?
To track how any given group of stocks is carrying out, you could always use stock indexes.
Stock indexes collect numerical data regarding either individual stocks’ performance within a particular time frame. For example, you could be tracking the performance of the 500 most prominent companies in the U.S. (S&P 500).
If you were to use stock markets, you have within your reach the ability to research, evaluate, and predict future events in the market that could be useful to you. It is, however, of the utmost importance that you don’t limit yourself exclusively to only the information presented in your chosen indexes, as they do not fully represent the market as a whole. They’re a great tool, but not the only one at hand.