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a stock market is one of the topmost avenues to build wealth for investors
however investing in stock markets is not risk-free investors must approach a stock
market a clearinghouse where investors can either buy or sell shares with discipline approaching
the stock market in a disciplined manner is the best method to grow your worth quickly
to understand the mechanics of the stock market let us begin by studying the definition of a stock
and a stock market a stock of a company gives ownership in the firm with voting rights with
the shareholders they also get the claims of corporate earnings via capital gains and dividends
a stock market is an electronic marketplace where individual and institutional investors
meet to buy and sell shares the entire dynamics of a stock market works on the economic principle of
supply and demand a stock exchange is a secondary market where existing owners of stocks can
transact with potential buyers it implies that when a buyer purchases stocks on the stock market
he's not buying from the company but some existing shareholder the companies register
or list themselves on the primary stock market to raise money via an initial public offer
otherwise known as an ipo after listing on the stock market the company becomes a public entity
so how are share prices fixed well the stock markets follow an auction process where buyers
and sellers exchange bids to determine the price of a stock a bid is a price at which
a buyer wishes to buy an offer is a price at which a seller wishes to sell a stock
finally the two parties meet on a stock exchange and a trade is executed successfully millions of
such transactions are executed on a stock exchange during a day resulting in minute by minute
gyrations in the stock market's price over a trading day in addition a stock exchange provides
a platform where such trading can be easily conducted by matching buyers and sellers of stocks
a common investor can get access to a stock exchange through a brokerage or a stock broker
which act as the middleman between the buyer and the seller investors can own stocks
either through mutual funds or a brokerage account or an individual retirement account
so what are the supply demand dynamics well the stock market works in real time on the laws
of supply and demand for example the price of a particular stock would surge if there were several
buyers and vice versa the bid ask or bid offer spread is the difference between the bid price for
a stock similarly the ad score offer price is the difference between the highest price a buyer is
willing to pay or bid for a stock and the lowest price at which a seller is offering the stock
a trade is completed when a buyer accepts the offer price or a seller takes the bid price a
seller may ask for a higher price when buyers outnumber sellers resulting in the highest stock
price conversely if sellers outnumber buyers then may be willing to accept lower offers for
the stock while buyers will also lower their bids effectively bringing down the stock price
the market is said to have a good depth if it has buyers and sellers sequentially higher and lower
prices high quality stock markets generally have small bid ask spreads and high liquidity before
matching buyers and sellers was done manually but now almost all the exchanges in the world
have shifted to electronic trading systems these systems can match buyers and sellers
far more effectively and rapidly and offering investors and traders significant benefits such
as lower trading costs and faster trade execution the stock exchange confirms the details of an
order once it has been finalized it is done to ensure that there's no transaction related default
thereafter the stock exchange facilitates the transfer of share ownership known as settlement
investor receives a message once this is done each trade occurs on a stock by stock basis
however overall stock prices are impacted by the news political events economic
reports and other factors investors can track the performance of a stock market by looking at broad
market indices such as the s p 500 the dow jones industrial average or the asx 200. they can even
track a stock chart to gauge the performance of a stock on a real-time basis and a historical basis
there are several tools available that help investors in carrying out
detailed analysis of stocks to make the best possible trading decision
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