A certain friend once had a speculative idea, of the stock market being a center where people screamed all day. He also strongly believed that it was some sort of financial battlefield, where you killed or escaped with bruises. Thanks to the advent of technology, the stock market is technically virtual and physically safe.
A stock market is a place for the financially wise and disciplined, who are willing to make investments for a substantial reward. In the subsequent paragraphs, the rudiments of trading on the stock market will be extensively discussed. What it is, the way it works, its history and evolution, and why you need to invest in it.
The stock market, also called an equity or share market, can be likened to a globalized market place. But in this case, the goods and services [virtual] provided primarily, are termed ‘stocks’- stocks are basically, shares of a company. Picture an apple pie, representing a company – each slice translates to a company’s share value, a bigger pie promises a generous slice.
Stocks, albeit its popularity, are not traded solely on the stock market. Other financial securities are involved. This could be corporate bonds, exchange-traded funds, etc.
The perks of owning a share lie in the ability of the company to rake in profits. As stated in the apple pie analogy, buying stocks is a little risk dependent. But, greater risks, guarantees a greater reward.
While stocks are said to be the shares in a company’s ownership or profits, bonds are a debt owed by the company. Instead of taking a loan directly from a bank, a company [being a distinctive legal entity], can borrow from individuals. These individuals are said to have purchased a bond, and bonds pose fewer risks than stocks. A company facing bankruptcy would be forced to sell its assets to repay its debts, while its shareholders come last.
The stock market, therefore, is simply a conglomerate of buyers, sellers and intermediaries trading stocks and other financial securities. A booming stock market is essential to overall economic stability as it allows companies to access funds from the masses. A total of about $69 trillion are traded on the stock market a year, surpassing the entire world economy.
So, while money makes the world go round, the stock market is the pedestal on which it rotates.