How does the stock market work?
Overview of how the stock market works
The stock market operates on the basic principle of matching supply and demand through an auction process in which investors are willing to pay a certain amount for an asset (stocks, in this case) and are willing to sell something they have for a certain price. Therefore, every asset has a value - which is the individual's preference and price - which is the market's determination of the value of the asset.
Terms used in the stock market
To understand how the stock market works, let’s first take a look at the economics of supply and demand. no scholarship.
The current price of the security;
The stock market works like an anonymous auction machine: one person auctions his assets and waits for another to bid the right amount. When the sell price matches the buy price, the trade takes place and the stock market gets a cut.
when multiple sellers start selling the warehouse, ask for a specific price.Because the minimum amount by which I can increase the stock price is $204.25, which is $0.01 more than the market price. This 0.01 USD is called the tick size. The smaller the tick size, the slower the stock price growth will be, but the smoother the flow will be.
The greater the spread between the bid and ask price (called the bidask spread), the lower the liquidity. If the difference between the bid price and the ask price is small, the trade takes place early and means that market liquidity is high.
The market price at which the stock opens at the start of the day.
The last price at which the security traded on the previous business day.Accordion Content
The market on which shares are traded. There may be multiple exchanges where shares may be traded and there may be price differences on each exchange.
The number of shares offered for sale or asked at a specified asking price
Advantages
The manner in which the works of action have been greatly improved to generations and corresponds perfectly to demand and perfection.It also means having purchased a higher price, then sell at higher prices to make a profit, which is also indicated as a negotiation of the Company’s shares.
Limits
The stock market uses supply and demand as the driving force. As good as that is, there are
other derivatives that depend on stocks and people can alter the supply of stocks to move option prices in the direction they want. The anonymity makes it difficult to find the owner.
The complete flow of information is not yet possible in the current way. If the flow of information is complete, there should be no sudden decline or rise in stock prices, which is not the case currently.
When machines take over trading, incidents such as Flash Crashes can throw the market out of whack.
The closer the trade is to the trader, the faster the stock price data will be, which can make things difficult for traders in a different position.
The stock market encourages active rather than passive investing.
Conclusion
Stock market refers to the market or exchange of shares held by a public company, where investors buy and sell shares. It also means buying a stock at a lower price and then selling it back at a higher price to make a profit, which is also known as company stock trading.
Like many things in finance, stock markets are useful and close to perfect. There are so many things that can be done using these auction-based markets: companies can raise money, people can own a percentage of companies, hedge fund managers can get public information, etc. However, they are not yet infallible, but soon they will be as technology improves.
