What is the stock market in simple terms.

The stock market, which has been functioning for decades, still remains something unclear and sometimes complicated to understand. However, today, due to many economic crises, it is worth figuring out what the stock market is and how it works in general.

Let’s start with what the stock market is: it is a place where shares of companies and other financial instruments, such as bonds, options, and futures, are bought and sold. The type of merchandise can be very diverse. Therefore, the answer to the question of what the financial market is can be likened to an ordinary market, just with unusual goods (for the average person).

What are stock markets in simple terms?

There are quite a few nuances about what the stock market is and how it works. Even simplifying this system requires considering a number of unfamiliar terminologies. Therefore, understanding what it means in a minute is unlikely to succeed. However, the operating system of the stock market cannot be simple. That is why big money "circulates" in this market.

What is the stock market in simple terms: it’s hard to explain without an example. For example, large companies (huge and very expensive) are like enormous shops. They sell various goods. Due to the size of the company, it has several owners. Conventionally, these are the shares of the company. It is these that can be bought. The more popular the shop, the more expensive its shares become. At the same Time, prices can rise, and this process is always dynamic. If someone bought shares earlier, they can sell them at many times higher prices and thus earn money. There is also the downside, when the store depreciates, as do its shares. Then those who invested may lose their initial contribution. This is how the financial market operates with numerous companies. This system is easier to understand for people.

While figuring out what this is, it is worth considering what can be such peculiar goods:

1. Shares. These are portions of a company that can be bought and sold. A shareholder has the right to a portion of the company’s profits (if it pays dividends) and can vote at shareholders’ meetings.

2. Indexes. These are groups of stocks that are combined to track the overall market trend. Examples include S&P 500, Dow Jones Industrial Average. These indexes show how stocks are generally behaving in the market.

3. Investors. Individuals or organizations that buy and sell stocks and other instruments in the stock market. These can be private individuals, banks, investment funds.

Remembering all this terminology the first time is not so easy, but everything comes gradually. The more one monitors the operation of the stock market, the easier it will be to understand how and with what instruments it works.

Why is the stock market necessary?

It is important to understand why the stock market exists at all. First of all, the stock market helps companies raise money for business development. They issue shares and sell them to investors, obtaining capital for investment and growth. For a company, this is an extremely important moment for further development.

The stock market is also extremely important for investors. It is an opportunity to make money. Investors can buy shares, hoping that their value will rise later and sell them for a profit.

Overall, the existence of the stock market positively affects the development of the economy. The stock market contributes to economic growth as companies receive funding for expansion, creating new jobs, and implementing innovations. In general, the stock market is a key mechanism in the economy that connects companies needing funding with investors who wish to earn income from their investments.

How does it all work?

The stock market has a pretty understandable system of buying and selling shares. It resembles a platform, like any marketplace for buying and selling. The structure is also quite simple. It is a place where sellers (those who want to sell their securities) and buyers (those who want to buy them) meet. In reality, the system is more complex, but that is primarily for beginners.

If we break it down into stages, first, we should consider the initial public offering (IPO). That is, if a company decides to attract additional funds, it can issue shares and offer them to investors through an IPO. Here, the company sells its shares to the stock market for the first time. The funds received from the sale of shares go to the company for business development.

Next, trading of shares occurs on the secondary market. This is also an important stage of the stock market's operation. After the IPO, shares start trading in the secondary market, where investors can buy and sell them among themselves. These transactions take place on stock exchanges. There are not that many of them, and the largest is located in New York; even those unfamiliar with stock markets know about it. It is on the secondary market where money can be earned. The price of shares is determined by supply and demand: if more people want to buy a share (high demand), the price for it rises. If more people want to sell a share (high supply), the price falls.

A few words should be said about the role of brokerage firms in this entire process. Brokerage firms are intermediaries between buyers and sellers. They take orders from their clients to buy or sell shares and execute those orders on the exchange. Brokers receive a commission for their services. Modern brokers often offer online platforms through which investors can independently buy and sell shares.

In the stock market, the bond market is also important. In addition to shares, bonds are traded on the stock market – debt securities issued by companies or governments. By purchasing a bond, an investor is essentially lending money to the issuer (the one who issued the bond), which is obligated to return it with interest by a specified date. Bonds are considered less risky compared to shares, but the potential profit from them is usually lower.