All about the stock market

Do you want to know everything about the stock market? No problem. A stock market is a centralized place where shares of publicly traded companies are bought and sold. It differs from other markets in that tradable assets are limited to stocks, bonds, and exchange-traded products.  

In this market, investors are looking for instruments in which to invest and companies or issuers need to finance their projects. Both groups trade securities, such as stocks, bonds and mutual funds, through intermediaries (agents, brokers and exchanges).

The main purpose of the scholarship is to help to the movement of capital, thus contributing to monetary and financial stability. This is how the democratic use of securities markets encourages the development of more active and safer monetary policies. In this article, I present to you everything you need to know about the stock market.

What is the stock market?

The term " stock Exchange » often refers to one of the major stock market indices, such as the Dow Jones Industrial Average or the Standard & Poor’s 500. When you buy the stock of a public company, you are buying a small part of that company. Because it is difficult to track every company, the Dow and S&P indexes include a portion of the stock market and their performance is considered representative of the entire market.

To invest in the stock market, you do not need to officially become a “ investor ". The stock market is open to everyone. You might see a news headline that says the stock market went down, or that it closed higher or lower for the day. Most often, this means that stock indices went up or down. Which means that the stocks within the index gained or lost value as a whole. Investors who buy and sell stocks hope to make a profit from this movement in stock prices.

Among the most important characteristics of the stock market are the following:

The profitability

By investing in a stock market, one expects to get a return for it. Something that can happen in two ways: The collection of dividends and the difference between the sale price and the purchase price of the securities. In other words, with the capital gain or loss obtained.

Security

We are talking about a stock market. This means that values ​​can move up or down, depending on market fluctuations. Obviously, this represents a risk, since it is not known for sure whether the investment will result in a profit. Investments in long-term securities have a greater probability of being a profitable and safe investment. Another way to reduce risk when investing is la diversification. In this way, the probability of having losses decreases.

Liquidity

It is very easy to invest in securities, so buying and selling is done quickly.

How does the stock market work?

The concept behind the working of the stock market is simple enough. The stock market allows buyers and sellers to negotiate prices and make transactions. The stock market operates through a network of exchanges. Companies list their shares on exchanges through a process called public offer initial or Initial Public Offering. Investors buy these shares, allowing the company to raise funds to expand its business. Investors can then buy and sell these shares among themselves, and the exchange tracks the supply and demand for each listed share.

This supply and demand helps determine the price of each security, or the levels at which stock market participants are willing to buy or sell. Buyers offer a “bid,” or the highest amount they are willing to pay, which is usually less than the amount that sellers “ask” in exchange. This difference is called the bid-ask spread. For a transaction to occur, a buyer must increase their price or a seller must decrease theirs. That's how the stock market works.

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What is stock market volatility?

Investing in the stock market involves risk, but with the right investment strategies, it can be done safely with minimal risk of long-term losses. the day trading, which requires buying and selling stocks quickly based on price fluctuations, is extremely risky. Conversely, investing in the stock market over the long term has proven to be an excellent way to build wealth over time.

For example, the S&P 500 has a historical average annualized total return of about 10% before adjusting for inflation. However, the market will rarely provide this year-over-year return.

Some years the stock market may end up going down significantly, and other years it may go up dramatically. These big swings are due to market volatility. If you actively buy and sell stocks, chances are you’ll make a mistake at some point, buying or selling at the wrong time, resulting in a loss. The key to investing safely is to stay invested in low-cost index funds that track the broader market, so your returns reflect the historical average.

What is traded on the stock exchange?

On the stock exchange, we not only subscribe for shares but also trade in other financial assets. That is to say, all those financial assets that companies have decided to sell or trade for their financing needs.

Differences Between Fixed Income and Stocks

These negotiated products are divided into two large groups, called fixed income or variable income. The type of income will depend on whether the returns received by the investor are predetermined or not, respectively. In fixed income, you can find debts, and equities correspond to the second group, shares. This last modality is preferred by companies when it is necessary to finance themselves on the stock market.

There are also hybrid products which are a mixture of the above, as is the case of convertible bonds. They first generate a fixed interest and then transform into equity securities. Another type is bonds with warrants, with which the investor also obtains the right to a premium or conversion into another financial asset.

It is important to note that on the financial market, not all listed equity securities have the same prestige. Indeed, they do not share the same income statements nor do they share the same expectations. This is how certain values ​​will have more prestige than others if they are compared. And it should also be noted that there is:

Common shares and preferred shares

Ordinary shares are securities that do not possess any type of special rights other than those provided by law and also in the company's articles of association. Ordinary shares are those which are capable of conferring the same rights on all their owners without there being any sort of distinction.

Preferred shares, on the other hand, are those that give their holders or owners some sort of special right. For example, we can cite that if a company goes bankrupt, it will be the shareholders and the owners who will be paid last. Indeed, the creditors are ahead of them and among the shareholders, the preferred securities are free to be collected before the others.

Advantages and disadvantages of stock markets

Stock markets have a number of advantages and disadvantages. These advantages are both for listed companies and for investors who wish to trade there.

Benefits of Stock Markets

Going public brings a certain prestige to a company. This is especially true for older stock exchanges, such as those in Amsterdam, London and New York. Going public also means that investors can buy shares in the company, helping it grow through fundraising. By trading on a stock exchange, investors have less risk of counterparty default. This is due to the high levels of regulation, which are lacking in over-the-counter trading methods.

Additionally, companies that act as online brokers have made it even easier for investors to access stock markets.

Disadvantages of Stock Markets

Going public is a significant investment of time and capital for companies. Additionally, once listed, they will have to answer to shareholders with stakes. Trading on a stock exchange does not guarantee stability. Stock markets are susceptible to market volatility, which means that there can be large swings in stock prices, usually in response to political and economic events around the world.

Stock markets can also crash. Although rare, stock market crashes can dramatically reduce the value of stocks and cause economic depressions that last for years. Traders and investors can manage their exposure to stock market volatility by implementing a risk management strategy.

Some examples of stock markets

The most important stock markets are:

The New York stock exchange (NYSE)

NYSE is the world's largest stock exchange, located at 11 Wall Street, New York City, United States. NYSE has around 2400 listed companies which include many blue chip companies like Walmart, Berkshire Hathaway Inc, JP Morgan Chase, etc. It is one of the oldest stock exchanges which was founded in 1792. The market capitalization of all companies listed on NYSE is approximately $22,9 trillion in 2021.

The average daily trading volume is between 2 and 6 billion shares. NYSE is the only exchange in the United States that offers floor trading to large traders. It offers trading in various financial instruments such as exchange-traded funds (ETFs), stocks, bonds, and several other options.

The ownership structure of the NYSE changed in 2006, when it merged with Archipelago Holdings to form NYSE Group, Inc. In anticipation of this change, the exchange's remaining seats were sold in December 2005. All seat holders became shareholders of NYSE Group. A merger with Euronext NV, a group of European stock exchanges, created the holding company NYSE Euronext in 2007. In 2008, NYSE Euronext acquired the American Stock Exchange (later renamed NYSE Amex Equities).

The main index of this exchange is the DOW JONES INDUSTRIAL AVERAGE.

NASDAQ

The NASDAQ is the second largest automated and electronic stock exchange in the United States and the first in New York. Its size is such that its trading volume per hour is greater than that of any exchange in the world. On the NASDAQ, more than 7000 stocks are listed. Participating companies are characterized by a high-tech, computer science and biotechnology profile. It is headquartered in New York and its most representative indices are the Nasdaq xnumx and Nasdaq Composite.

Where to view the global stock market in real time 

Nowadays, it is convenient to know and follow the main stock exchanges in the world live. Being able to observe the ups and downs of the stock market in real time is a method to situate oneself in the economic reality of the world. There are many platforms to follow stock prices in real time. In addition, the need for this type of information has made more and more sites offer these indexes. Some of them are:

• Megabolsa.com
• Planet Forex
• Investing.com
• The Economist
• Ecobolsa

There is also the option of apps for devices with Android or iOS operating system. These applications are very varied and adapt to all kinds of needs. Some of the most important are:

Bloomberg : Financial information agency specializing in the stock market. Thanks to its application you will have real-time access to values, stock market and capital market news. Its graphics are very useful.

Yahoo! Finance : Users will be able to create a portfolio of securities with more or less high risk products. So that you can make the decision to invest at the right time. It is a simple and simple application to use.

Google Finance: Another simple application which is recommended especially for beginners.

However, it is best to repeatedly visit several of the listed pages. In addition to checking more than one of these applications, because by contrasting all this data, one will obtain the best possible information.