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What Is The Stock Market?

What Is The Stock Market?

Stock market is so popular in these days. Since many people got laid out and also because of the pandemic, people started to get into the stock market. But what exactly the stock market is. How does is work? These are the questions that are asked frequnetly on the web. In this article, we will try to explain the stock market briefly. First of all, the notion of stock market dates back to 1700s. At the time, colonial expeditions were so expensive but also profitable in many ways. The ship dealers started to sell stock on the expeditions. In that way, they found a way to fund the expeditions freely. And of course, they agreed to share some of the profits.

As this was the case 300 years ago, the very goal of the stock market did not change very much. There are many companies. And these companies always are in need of funding their investments and costs. They may take loan and facilitate this funding problem. However, loans come with interest rates. Because of this added burden, they choose to go public. This is called initial public offering (IPO). They solve the funding problem by going public. Of course, there are many criterias to go public. Companies should be making profits and not going bankrupt.

The very first IPO of the world was the Dutch Easr India Company. As explained above, the company did this public offering to fund its expensive and risky expeditions. This happened almost 300 years ago.

How Does the Stock Market Work?

Stock market is very simple. For many people outside the finance world, it may look very complex. To give an example, lets take look at American stock market. The best known index in the US is S&P 500. This index is constituted of most valuable companies in the American stock exchange. There are 500 publicly traded companies in The S&P 500. One should look at the businesses and should decide which one to invest. After that you should have a brokerage account on banks or intermediary institutions such as Robinhood. Having deposited some money on your brokerage account, you can buy stocks of any company.

One thing to pay aattention is that, stock prices do not and may not show the real value of a company. Some times they may be valued too high or too low. In order to decide which one is it, one should be looking at the balance sheet of the company. You have to know what this company produces and sells. The best strategy in the stock market is that you should think it like buying a business not a lottery ticket. If the company makes profits, you make too and vice versa. Becase of this factor, buying a stock should be a serious matter.

How To Make Money In Stock Market?

Making money or earning money in the stock market is a very basic thing. A trader or an investor buys a stock at a certain price, and tries to sell it at a higher price. This does not sound so alien-thing right? Because it is not. You should be looking at like trading in the bazaar or market. But how can someone decide whether a stock is cheap or expensive?

The answers to this question is hiding in the mind of the investor. An investor should know why he bought a certain stock. After answering this basic question, he can know why he should sell the stock. It maybe that the business is very bad and the company does not make any profits or they have so many loans. These reasons are valid ones to sell a certain stock.


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