How the Stock Market Works That You Need to Know
You probably know what the stock market is already and sadly, a lot of people have misconceptions about it. New players are actually quite scared to invest due to the horror stories they usually hear about it such as an investor losing his riches, and so on.
However, no one should fear the stock market. It pays to get educated about how it really works so that in time, you can also invest your stocks using the platform of stock brokerage firms in Malaysia.
Today, I am going to talk about the basic information about how the stock market works that you definitely need to know. To get started, I will answer first what a stock is.
What is a Stock?
A stock or a share is like a piece of the company. Whenever someone buys a stock, you basically own a portion of a business.
The company releases its shares when it needs to raise some capital. It is done by issuing an initial public offering or IPO and the price of the shares is derived from how much the company is worth.
Any money that was raised during the IPO will be used by the company and the shares that were distributed can be traded in the stock exchange.
How About Buying and Selling?
The reason why it is called the Stock Market is that the price of a share or a stock really depends on the “market” or a group of people and investors. If they see that a particular company’s value has increased, so will the shares.
Now, some investors want to play it safe by somehow predicting the ebb and flow of the stock market, but you can’t really estimate how it will play out.
That is why experienced investors do not just buy shares from one company; they buy from multiple sources (which is a process called Diversification). Buying stocks this way will prevent worry and unwanted stress since if a particular company collapses, there are other stocks to fall back into.
For a Share transaction to occur, there must be a buyer and a seller. Again, their methods will depend entirely on the fluctuation/growth that is happening on the market.
For instance, if a particular stock goes down, sellers will be more aggressive in that they will sell them for a cheaper price. Buyers, in turn, will only buy something that is priced lower than the original value. You know, typical market strategies.
The Main Idea
This means that a group of investors might invest or not depending on how a particular stock will perform at that time.
Traders are encouraged to buy or sell every day and some are even mandated to do so. Although they may not buy or sell a lot, it is still best that there is volume happening on the stock market each and every day.
The Shares or Stocks are issued by a company whenever it wants to raise some money. This can be bought or sold by investors and traders depending on how the market performs in a given day.