How Does The Stock Market Work?

The stock market is a platform where sellers and buyers of stocks meet. The selling and buying of shares are typically referred to as trading. A share of stock represents a piece of company ownership.

If you buy a particular company’s stock, you are considered a shareholder or investor. Individual shareholders are called retail investors while the large shareholders including retirement funds and banks are known as institutional investors.

Stock Types

Stocks are two main types: preferred stock and common stock.

Common stock is the most regularly traded stock in the stock market. Holders of common stock typically have voting rights or the ability to vote on business decisions including company policies. If you hold a common stock that offers dividends, you will be paid this.

Preferred stockholders may have additional rights. They may receive dividends and other payments to common shareholders in case the company goes bankrupt. However, they sometimes lack the right to vote that holders of common stock enjoy.

The Stock Market

Stocks are availed on the scholarship once the company sells its shares to the general public for the first time in what is referred to as Initial Public Offering (IPO). Once a stock goes public, it becomes subjected to many factors that can affect how it trades including future company plans, business performance, and much more.

A bull market is a term used to refer to when a market as a whole rises. A bear market is the name given when the market as a whole declines.

Stock Trading

Today, many stocks are traded electronically in different parts of the world irrespective of the stock exchange they are listed on. The growth of the Internet and regulatory changes have made it possible for retail investors to trade stocks through online brokerages. Find more about how to trade options ->

Final Thoughts

If you did not know how the stock market works, you should now have an idea based on the information provided in this article. For more details, you should consult various free online resources.