What Is The Stock Market
What is the stock market? This is a great question. Being a budding stock investor myself I went on a search for an answer to the question “What is the stock market”. I believe that what I have found will help any beginner in understanding what the stock market it and how it works.
WHAT IS THE STOCK MARKET?
The word stock simply refers to a supple. You can have a stock of anything you want (from pencils in your pencil case, to clothes on your wardrobe). In the financial market stock refers to a supply of money that a company has raised. This supply comes from people who have given the company money in the hope that the company will make their money grow.
A market is a public place where things are bought and sold. The term “stock market” refers to the business of buying and selling stock. The stock market is not a specific place, though some people use the term “Wall Street”—the main street in New York City’s financial district—to refer to the U.S. stock market in general.
WHY DO COMPANIES SELL STOCK?
If a company wants to grow and expand then they need money to do that. They might need money to build factories, or shops or to hire more workers. In order to do that they need money, they could go to the bank and get a loan but then they would be in large amounts of debt. Instead, they can sell the business to get more money, but continue to control the business. How? They sell it to hundreds and even thousands of people in what is known as shares.
If you have a pie and you cut it into 100 pieces (it must be a pretty big pie), then each person would have a ”share” of the pie. It is the same with companies. Companies sell shares to people. Say a company sells 100 shares and you own 1 share then you would own 1% of the business. People who buy the stock (or the shares) are giving the company the money it needs to grow and expand.
WHY DO PEOPLE BUY SHARES?
The people who own the shares own a part of the company they have shares in. Therefore whenever the company makes money the shareholders (the people who own the stock/shares) get part of the profits that the company made. If the company makes money then the stockholders share in the profits and over time owning stock will earn people more money than leaving their money in the bank or making other
Stockholders in a company also usually have voting rights. They vote on such issues as who will be elected to the board of directors—the group of people who oversee company decisions—and whether to buy other companies. Stockholders typically have one vote for each share they own. Every vote counts, but a stockholder with 5,000 shares will have more influence on the company than someone with only one share.
WHAT ARE CAPITAL GAINS ON SHARES?
As a company makes money, the value of its stock goes up. It is similar to if you owned a restaurant. If your restaurant started off making $50,000/year then you might be able to sell it for $500,000. But say later on your restaurant was earning $100,000/year, then the resaurant might well be worth $1,000,000. It is the same with stocks, you own a percentage of that restaurant so as their profits increase your ’stock’ becomes more valuable as it is part of the business. This increase is value is called ‘capital gains’
Well I hope that helped explain some things about the stock market and I hope you now understand what the stock market is and how it works on the most basic level. Please leave any comments and questions below.
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