What is a stock market?

A stock market is a market composed of people who trade company stock, both those who want to buy the stock and those who want to sell stock. As a fish market contains people who want to buy and sell fish or a cattle market contains people who trade cows, a stock market trades in stock which is merely a slice of a company/organization. If you own over 50% of a company's stocks, then you practically own the company.

A stock market has several components.

Stock exchange

Stock exchanges are chief companies that facilitate the stock market to function as effectively as it does. They list shares prices for numerous firms, including the bid/ask prices of shares, and allow rapid electronic transmittal of shares among traders. Several stock exchanges that are quite popular include NASDAQ, LSE (London stock exchange) and the NYSE (New York stock exchange).

Companies are essential for a stock market to function! A firm must be registered as a PLC (public-listed company) for investors to trade its shares at a stock market. To be included as a PLC, a company must meet stringent financial qualifications.

Stock market brokerages

Brokers are the men working to connect the stock exchange and the stock buyer (i.e., you, the investor). They obtain the buy and sell prices of stocks from the stock exchange and passed them on to the buyers. It is a legal requirement for you to open a brokerage account in order to purchase or trade stocks.

Stock market traders

Without people who trade stock (buyers and sellers), a stock market will not function at all. Buyers can range from persons sitting in the comfort of their homes with their PC to giant multi-million dollar investment funds.

Stock market indexes

Ever heard of the FTSE 100, the Dow Jones 30 or the S&P 500? Simply, these are merely indicators. Take the S&P 500, for instance; it evaluates the top 500 companies in the US. If most people are selling shares in these companies, then the S&P 500 will inform you and also let you know otherwise. Nothing to it! More on index's.

Factors that affect the stock market

There are several factors that influence the stock market, however. Here is an enumeration of the chief factors:

  • Interest rates
  • Inflation rates
  • The property market
  • Employment rates
  • Natural disasters
  • War
  • Oil prices
  • Good/bad company news
  • Giant company mergers
  • Large company buy outs