This Article is About
daily basis
little bit
money
How Does The Stock Market Work
Join 1000's of Authors at StreetArticles Today!

How Does the Stock Market Work

People ask me how does the stock market work today? The answer to that question is fairly complicated but we'll try to break it down into some smaller chunks. By looking at who the participants are in the market and how they interact with each other we'll try to paint a picture of what the stock market is and how it functions.

Who Are the Major Participants in the Stock Market

First and most obvious are the companies you see listed in the business section every day. These are the companies whose shares are traded on a daily basis on week days. The companies you see listed are traded on exchanges - which have specific rules about the types (size and stock price mostly) of companies allowed to participate on those exchanges. Third we have the investment bankers, who raised money for the companies listed and created the listings that get placed on the exchanges. Fourth we have the brokers, who buy and sell shares on behalf of their investors. Lastly, we have investors, who put their money into an account and authorize their broker to buy and sell shares. While that doesn't cover in great detail the types and variety of all the participants, it should be enough to help me explain about just how does the stock market work.

How Does the Stock Market Work - Why Does the Stock Market Exist?

The stock market basically exists to connect people with money (investors) with companies that need money (listed companies). All of the participants' work results in the movement of money from people who have it to companies that need it to grow. That one sentence pretty much covers why we have the stock market in the first place. How does the stock market work to make this happen? That takes a little bit more explaining but we'll give it a go.

How Does Money Get from Investors to Companies?

It's important to understand that in 99% of cases the activity of bringing a company to the stock market in the first place is initiated by the company that wants to grow but needs more cash to either buy assets or hire more people or build new facilities. That company begins discussions with their bank to try to raise money to expand. Sometimes they simply can get a loan from the bank, other times they can not. It is these instances (when not enough loan money is available) that a company will call an investment bank and start the process of raising capital (money).

How Does the Stock Market Work to Get Shares Listed in the Paper?

Once the investment bank agrees to begin the process, they eventually give the company money in exchange for a percentage of ownership of the business. This percentage of ownership is then divided into equal parts (called shares). These shares are then priced based on the amount of money that was given the company plus a premium and fees and then re-sold to the general public (eventually) in an initial public offering. It is at this point the shares are actually listed on an exchange (a.k.a. they appear in the stock market). It's a little more complicated than that but the flow of funds basically goes like this: investment bank to company, brokers to investment bank, investors to brokers.

Investing on the stock market carries many risks, including losing some or all of your investment. Further, buying shares of a stock does not guarantee any return on investment either. Many people opt to use high leverage investing to maximize their buying power and increase their chances of larger profits.


Street Talk

Gary2  

Great Article Steve. Gary

Reply
  about 9 years ago
You May Also Like
Having Email Classes Through Autoresponders
One method of marketing if you are in the internet marketing business is to offer something free to your website's visitors. This will often times result in many sales in the future. Delivering a class through email is quite popular, and potential customers will sign up for these classes regularly…
By: Marla Overton in  Internet and Businesses Online  >  Autoresponders   Jun 13, 2011  
0
  Likes: 1

What Should A Wife Do When Her Husband Ask Her for A Separation?
On an almost daily basis, I hear from a wives whose husband has asked her for a separation.  Many wives' first inclination is try to change the husband's mind or to talk him out of this.   And this strategy make work once or twice.  But what usually happens if it…
By: Leslie Cane in  Relationships  >  Marriage   Mar 12, 2011  
0
  Likes: 3

What is Wrong With The News
What Is In The News Have you notice that the media always pays itself out as the only way to see things? Have you ever thought about the possibility that the media could be wrong and pulling us in as if we are not to bright and our only source…
By: Carmen Breen in  News and Society  >  Pure Opinion   May 11, 2011  
0
  Likes: 0

Self Development Tips – What Do You Need?
Self development tips are part of the many lessons in life which we will never have the chance to study and master them within any education curriculum. This is because development is continuous, and, as long as one is alive; there is the necessity to grow and improve. We therefore…
By: Josh McObuya (Greenright) in  Self Improvement  >  Personal Growth   Feb 09, 2012  
13
  Likes: 7

Work Less! - Accomplish More?
There is a wealth of information to sift through on a daily basis and the news seems to always be in the headlines of websites we visit and the spam emails certainly cost valuable time sifting through at work and at home. There are valuable tricks we can use to…
By: CurtisJ75 in  Reference and Education  >  College University   Jan 09, 2012  
0
  Likes: 0

Are You A Giver Or A Taker? 5 Steps to Become A Giver
This is one thing I try to ask myself on a daily basis. I want to be a giver, not a taker. Why, you may ask. Well, I find that being a giver is much more rewarding than being a taker. This is not to say that when you given…
By: Joyce aka Nana in  Self Improvement  >  Inspirational   Nov 10, 2012  
5
  Likes: 1

What is the Point Of Keyword Research?
It is often asked, "what really is the point of keyword research? I have asked this same question before, and hopefully I'll be able to answer your questions about the why's and how's of keyword research in this article. Why Research Keywords? Ok, why should we do this in the…
By: Stephen Rush in  Internet and Businesses Online  >  SEO   Aug 14, 2012  
0
  Likes: 1

One Apple And A Doctor's Review - Leading to Success!
I choose to concentrate on affiliate marketing training in order to make money on the internet. My reason is that most online ‘experts’ still need to keep learning something new on a daily basis. As long as you are learning and applying learnt concepts to your online business, you will…
2
  Likes: 1

My Baby Boy And Apple Crumble
I'm looking forward to Christmas this year. It's my and my fiance's last Christmas without a little baby to look after. In Feb 2012 we'll become parents to little Samuel and will have the chance to teach him all the things we have learnt in my 32 years on the…
By: Ollie Tanton Brown in  Food and Drink  >  Desserts   Nov 21, 2011  
0
  Likes: 0

What Is Forum Marketing?
Forum marketing is a great way to get your business noticed online by others. You will find experienced users of blogs and savvy internet marketers in forums where you can also learn a lot of from them if you hang out there a lot.Your messages get spread far and wide…
By: Charles Goldie in  Business  >  Marketing   Oct 23, 2011  
0
  Likes: 1

YOU Need Financial Planning
Financial planning isn’t something that strikes many people as exciting. It really doesn’t conjure up images of people jumping up and down with enthusiasm, as they are told that you need to sit down and figure this stuff out. Many people just ask “Why would I need any kind of…
By: Stephen Rush in  Finance  >  Personal Finance   Jun 22, 2012  
1
  Likes: 0

These Foods Turn Off Fat Burning
Many people who engage in dieting are of the opinion that if they eat less they should lose weight, but they soon find out that life is not that simple. I have known overweight individuals who have tried all the diets in the world and at the end of the…
By: Des Forbes in  Health and Fitness  >  Hypertension   Apr 16, 2013  
0
  Likes: 1

5 Tips to Avoid Losing Time
One commodity that we all have in common is time and it’s one thing that many of us struggle with. It doesn’t actually matter how hard we try, we can’t actually “save time” and we can’t even “buy time” (although that doesn’t stop people from trying”. What we can do…
By: BIS_Coach in  Self Improvement  >  Time Management   Jun 28, 2012  
6
  Likes: 3

Why Emotional Infidelity Is More Dangerous Than Physical Infidelity?
Most would usually think that emotional infidelity is less serious than physical infidelity but both share the same devastating effects as having a physical affair. It can in fact elicit forbidden relationships especially when you are too attached with an individual other than your spouse. Emotional infidelity comes in when…
By: Kajay in  Relationships  >  Affairs   Nov 29, 2011  
0
  Likes: 1

Mind Power Development
Our minds are one of the most powerful forces in the world but yet we only use 10% of our brain. Imagine how powerful your average human would be if they had access to the other 90% of their brain? I’m pretty sure that they would be classified as superhuman.…
By: eddy harry in  Self Improvement  >  Mind Development   Oct 21, 2011  
1
  Likes: 3

Article Views: 1637    Report this Article