How does the stock market work?

We often hear about the stock market has reached new highs and lows at times. There are statements such as the Dow Jones Industrial Average up 2 percent on a particular day, with major advances declines by a margin of ...

The question arises: How does the stock market work?
You need to understand some basic terms in the stock markets prior to understand how it works.

What stock?

The meaning of "stock" may be better explained with an example. Suppose you want to start a grocery store. You can buy the premises, groceries, hire personnel, advertising and start your business. Say you have $ 400,000 invested in the purchase of premises, construction and other miscellaneous items. You go, for example, $ 200,000 on the acquisition of supplies. At the end of the year, your gross income, for example, $ 250,000. Your net income is $ 250,000 (income) - $ 200,000 (cost of supplies) = $ 50,000.

At the end of the second year, your gross salary is $ 260,000 and your net income increased to $ 60,000. Your costs remain unchanged. Now that you evaluate your net profits are likely to remain around that figure the amount of your investment in supplies.

You think that expanding your business. To calculate the total value of your investment that includes investment on your premises, miscellaneous expenses, supplies and personnel.

Purpose of this contribution, the total value of your company is $ 400,000 (local) + $ 200,000 (grocery) + $ 60,000 (profit) = $ 660,000. Since you are in business to make money and your business is also a reasonable profit, you May the price of your company to say $ 1000000 when you invite other shareholders of your company.

Suppose you invite 10 or 20 shareholders. Each shareholder will pay $ 1000000 divided by 10 or 20 to be an equal partner in your business. When the company decide on, each shareholder will have a 10 or 20 votes, and will own the same proportion of its assets and profits.

Or, you May even keep half of the part of yourself and sell the other half share with others. In this case, you'll have more weight in business decisions and get half the property and profits as well.

May you divide the total value of your business in greater number of shares, for example, 100, 1000 or even 10000.

Stock or share, at its core, is really as simple as that. It is owned by a company 's assets and profits.

Stock Exchange

Although you used a private company, but with the participation of the population in general, your company has become a public company. In addition, shareholders in May not be interested in exercising their partnership within your company and May, to sell their shares to others.

The sale of shares in this case May not be easy.

Thus, in order to facilitate trade in the shares of these large public companies, stock markets or the stock exchanges have been established. We have the examples of New York Stock Exchange (NYSE), NASDAQ and the American Stock Exchange. They are supermarkets for buying and selling shares.

There are two types of grants, one is the physical stock exchange and the other is virtual exchange.

Physical scholarship

New York Stock Exchange-NYSE - is an example of a physical stock exchange. To redeem your shares, you must open an account with a broker or brokerage firm. The NYSE is a sort of wild place where stock traders can be seen on the outside trying to shout each other while gesturing with their hands trying to buy or sell shares. These people are called floor brokers. Your stockbroker is these contacts floor brokers at the New York Stock Exchange to buy or sell your shares. Millions of shares are bought or sold a day.

Virtual Stock Exchange

The advent of computers and broadband Internet has facilitated the trading of shares via the Internet.

But, as I said, you can not directly buy and sell shares, even online in the stock market. You need the services of brokers or securities brokerage firms that are also online. Exchanges on-line is performed are called virtual scholarships. National Association of Securities Dealers Automated Quotations System or NASDAQ is an example of a virtual stock exchange.

Share prices

Share prices or the stock is determined primarily by supply and demand of the stock in question. Supply and demand of the stock, moreover, depends on many factors, including the financial prospects of the company whose stock you are trading.