Eager to invest in the stock market but wondering if you can handle it? Of course you can! Once you learn how the stock market works and understand the jargon, you might start reading even stock charts with ease.
What is the stock market?
The stock market or stock exchange is where people buy and sell various kinds of financial securities. These may include shares, government bonds, debentures, mutual fund units, commodities, currencies, and lots more.
How does the stock market work?
Most investors in the stock market invest in the shares of public companies. So, let’s look at this from the beginning:
When a private company goes public, it makes an initial public offering (IPO). Hereby, the company issues shares for public ownership for the very first time. These shares are issued in the primary market. Those who are allotted shares of this newly public company become part-owners. The company can use the funds thus raised to fuel growth.
Upon completion of the IPO, shares of the company can be bought or sold in the secondary market (i.e. the stock exchange). One can buy shares at the market value from the shareholder. Or, the buyer and the seller could negotiate a mutually acceptable rate.
Anyone who holds the shares of a company enjoys certain benefits. They receive dividends, which is a share of the company’s profits. Sometimes companies also issue bonus shares in lieu of cash dividends. And on occasion, companies offer to buy back shares at a rate …