What is the Stockmarket and What Does it Do?
Perhaps you are thinking about doing some 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. Below I will go over the main functions of the stockmarket.
The 2 Main Roles 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 other is the secondary market.
Primary Market
In the primary market, companies can issue new shares and they are obtainable to the original shareholders or to the public. The best way to understand the primary market - think of the resemblance to a new car dealer. The money you pay the dealer for your new car goes to the manufacturer minus the dealer's mark-up. This is what happens in the primary market; the money raised by the new stocks goes to the company minus any costs.
Normally, companies offer new shares for expansion; like building a new factory, to extend a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in return for potential higher profits.
Secondary Markets
In the secondary market, the public can sell and buy shares and stocks. With the car equivalence, we now think about a second hand car dealership. When you purchase a second hand car from the dealer, 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 has now sold it to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. Just as you can buy and sell a car, you are also free to 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 not be a primary market.
What Moves the Markets?
In essence, the reasons that markets move can be boiled down to either the rational or the irrational factors. But of course it is a lot more complicated than that. There are however only three main reasons for the markets to move and these are the irrational pack mindset of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (for example depression, inflation or government policies), and the technical factors (such as investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You must take into consideration all of the factors 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. - 23212
The 2 Main Roles 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 other is the secondary market.
Primary Market
In the primary market, companies can issue new shares and they are obtainable to the original shareholders or to the public. The best way to understand the primary market - think of the resemblance to a new car dealer. The money you pay the dealer for your new car goes to the manufacturer minus the dealer's mark-up. This is what happens in the primary market; the money raised by the new stocks goes to the company minus any costs.
Normally, companies offer new shares for expansion; like building a new factory, to extend a new product line, or to refinance debt. This can be explained as the raising of capital by sharing the risk in return for potential higher profits.
Secondary Markets
In the secondary market, the public can sell and buy shares and stocks. With the car equivalence, we now think about a second hand car dealership. When you purchase a second hand car from the dealer, 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 has now sold it to another owner.
This way of bringing sellers and buyers together is how the secondary market of the stockmarket functions. Just as you can buy and sell a car, you are also free to 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 not be a primary market.
What Moves the Markets?
In essence, the reasons that markets move can be boiled down to either the rational or the irrational factors. But of course it is a lot more complicated than that. There are however only three main reasons for the markets to move and these are the irrational pack mindset of the investors (swings of optimism to pessimism regarding risks), the fundamental factors (for example depression, inflation or government policies), and the technical factors (such as investment trends or the popularity of an industry or product.)
Knowing what causes the markets to move are important factors to take into consideration both for short term and long term investing. You must take into consideration all of the factors 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. - 23212
About the Author:
William Wilkie writes about personal finance products and services. Check out his website for the top Identity Theft Program from TrustedID.
posted by X - Men @ 1:49 AM
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