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The Stock Markets Workings

RamonB | Jan 11, 2010 |

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The stock market can be mysterious sometimes, particularly if you are a stock market newbie. There are times when everything seems to make sense and the markets are behaving themselves perfectly, and there are other times when the actions of the market seem inexplicable, even to the most experienced traders. Stock markets rise and fall on a regular basis, and it's difficult to predict which way the markets will go on any given day - what we do know though is that, over a long period of time, stock markets will rise and generally they outpace almost any other type of investments. In order to make money from any stock market, it is essential that you understand the stock market fundamentals of how the system works. This along with investing for the longer-term should keep your investments healthy. Stock markets all over the world work in exactly the same way - they are all driven by the amount of shares available and the number of customers who want to buy these shares (supply and demand). You must remember that the stock market is just a place where people go to buy or sell shares, and for every share that someone buys, there is a corresponding person selling that share. These deals are struck by brokers operating from the stock exchanges - the brokers facilitate the trades by matching buyers with sellers. The broker earns his money by taking a small commission on each trade he sets up. The world's big exchanges are the Nasdaq, the Footsie, the Nikkei, and the New York Stock Exchange (NYSE) - A few years ago all stock market trades were completed inside the exchanges themselves, on the trading floors. Nowadays with the advancement in computer technologies, trading can be done from virtually anywhere, but you still need to place your trade through a broker. To try to make things a little clearer, I've outlined below how a typical trade might take place: First you would open an account with a stock broker of your choice (let's call them Brokers Inc.), you will need to deposit some funds with Brokers Inc or demonstrate that you have sufficient funds available to invest. Once your account is open, you place an order to through your stock broker to buy a set number of shares in the company of your choice (let's call it Shares Inc.) at an agreed price of say $5 a share. Brokers Inc inform the stock market that there is a buyer in the market for 100 shares of Shares Inc stock. The market then finds a seller of 100 shares of Shares Inc stock and the trade is executed instantaneously. So whether you have a wealth of experience or you're a total stock market beginner, as long as you take your time and do your research you will be fine.