Last week I explained the stock market on a basic level. Today we will dig a bit deeper.
Most stocks are traded on exchanges where buyers and sellers meet and agree on acceptable prices for shares. These exchanges can be physical places (like the NYSE or NASDAQ) or virtual locations. Stock markets facilitate these exchanges to set rules and reduce the risks involved in trading.
There are two types of markets. First is the primary market, where securities are created and bought. Then there is the secondary market where previously issued securities are traded.
Prices fluctuate daily as a result of supply and demand. Demand depends on what the company is deemed to be worth by investors (often determined by a company’s earnings over a given period of time as well as the saturation of the industry in question). The supply is based on how many shares are available.
Next week, I will go into how to buy stocks and how to read a stock table. For more in depth explanations, visit http://www.investopedia.com.