Stocktrading

How does stock market works

If you have ever attended an auction then you might be able to relate to the daily operation of the stock market. The stock market is basically an auction between those who believe that the stock is overpriced and will drop (known as the bears) and those who think the stock will go up and is underpriced (known as the bulls).

At an auction, there is an auctioneer, the New York Stock Exchange (the largest stock market in the world where 85% of the world’s finance is exchanged), and the American Stock Exchange is called the market maker. The market maker tries to match buyers with sellers so it is acting as the auctioneer. There is no set stock price, so Institutions and traders can bid for and offer to sell stock at different prices and a balance between these determines the final stock price as set by the market maker. Stock Market prices fluctuate throughout the day depending on supply and demand. Bidders buy on the expectation that the stock price will go higher and sellers sell because they think the stock price will go lower. The stock market is a game of psychology between the bulls and bears that repeats itself daily.

There are many stock market indexes that comprise groups of stocks within a certain group or industry. These indexes rise and fall depending on the stock prices of the companies included in these indexes. The most famous stock market index is the Dow Jones which comprises the top 30 stocks in the USA, there is also the S&P 500 that is made up of 500 so called “blue chip” stocks. The NAZDAQ operates completely differently from the New York and American Stock exchanges. The NAZDAQ operates completely electronically. The trades placed on the NAZDAQ are placed through a huge computerized network. Buyers and sellers place their bids and offer stocks through the network. The stocks in the system are put into different levels depending on their bid or ask price. The highest bid price gets the top position for the purchasors and the lowest sell price is the first to be sold for the sellers. This is basically a description of how the stock market bid and ask system works when you see different prices listed for a particular stock.

To most stock market investors all this goes on behind the scenes. The internet has simplified access and the understanding required into how the stock market works in order to invest successfully. The number of investors investing in the stock market online has increased dramatically over the last decade as people can easily get an online stock trading course for beginners and have a basic understanding of how the stock market works. This has allowed investors to not be reliant on stock brokers charging high brokerage commissions in exchange for their stock market knowledge.

Small, educated, astute investors with a good understanding of how the stock market works through a good online stock trading course can now invest with confidence in a level playing field and create substantial profits to grow their net wealth.

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The CBS Evening News with Scott Pelley – Falling Stock Market hits Calif. budget hard

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