How Does The Stock Market Work For You

The stock of publicly owned businesses are bought and sold at a stock exchange or stock market. Simply put, the stock market is a place to shop for shares of companies. You do not need to travel to the stock market because there are brokers who will represent your interests by buying and selling stock on your behalf. This makes the stock market an easier enterprise for people who want to buy and sell stock.

Without a broker to represent you at the stock market, you would have to find people who might be interested in your stock and negotiate prices on your own. This could be a costly and time-consuming endeavor. Probably not much stock would get bought and sold if everyone had to do it on their own.

The stock market has a special effect on stock prices. Since all of the stock is bought and sold at one particular venue, in the U.S. that venue is the New York Stock Exchange, investors can watch their stock rise and fall moment by moment. Therefore, they can have an instant reaction to prices, deciding whether to buy or sell based upon the fluctuations of the stock market.

Any business wanting to sell shares on the stock market must, first, incorporate. Owners of the corporation hold shares of stock in that corporation. The value of their stock is controlled by the fluctuation of the market. In fact, the value of the corporation is controlled more by the fluctuation of the market than by its actual earned profit. Some people wonder if the stock market is or is not a truly good way to value a corporation.

Each corporation has a group of owners, known as shareholders. The shareholders elect a board of directors to make the major decisions regarding the corporation. The board of directors decides how many shares of stock in the corporation will be offered. These shares of stock are then held either privately or publicly. Privately held shares of stock are not bought and sold on the stock market. Only publicly held shares of stock are bought and sold on the stock market. A corporation with privately held shares of stock is probably owned by a group of people who all know one another and sell their shares of stock back and forth, among themselves. A corporation with publicly held shares of stock is owned by any number of people who buy and sell their stock openly, on the stock market.

When a corporation initially sells its shares of stock on the stock market it is called an Initial Public Offering (IPO). Let’s say that the corporation initially sells one million shares of stock at seventeen dollars per share. In this manner the corporation raises seventeen million dollars. The money, after the brokerage fees are deducted, is then invested in the corporation for equipment, operations and employee costs. The people who purchased shares of stock in this corporation via the stock market are betting that the corporation will use this money to make a profit. These shareholders can then receive a return on their investment through dividends or by selling their shares on the stock market, at a profit.