Everyone living in 21st century has more or less heard of stories about the new rich making their fortune by venturing in stock market. Indeed, stock trading is one of the most profitable investments, especially in contemporary world. If you’re fascinated by such stories and want to get a taste of stock trading, this is for you, as a beginner, to learn about the basics of the essence of stock trading, the stock market.

How the stock market works:

The stock market refers to the marketplaces where companies issue shares and investors buy and sell stocks. Usually, stock market consists of stock exchanges like the famous Nasdaq and New York Stock Exchanges. The circulation of stocks starts from IPO process (Initial Public offering), in which companies issue and sell their shares to the public at the first time. This process is also known as listing. Then the stock market serves as a platform where investors can trade their stocks freely. And it constitutes the secondary market.

Stock Exchanges:

Activities like buying and selling stocks happens in stock exchanges. A stock exchange is a centralized place which provides liquidity to stocks trading. In traditional stock exchanges, you need to hire a stock broker to help you trade stocks. New York Stock Exchange even keeps auction-based exchanges which allow stock brokers to communicate physically in order to make a deal. However, recently emerged electronic exchanges claim to have more convenient ways for stock trading and threaten traditional ones. Nonetheless, the established exchanges are still more reliable and safer institutions for stock trading.

Stock Market Indexes:

The stock market also collects and calculates various market-level and sector-specific indicators for analysts and common investors to track the movement of stock market and make decisions, for instance, S&P 500, Dow Jones Industrial Average, and Nasdaq Composite are the most important and popular indexes in the USA. Actually, there are approximately 5,000 U.S. indexes. Most of them are market-weighted or price-weighted, deriving from the price per share of certain target companies. For example, S&P 500 takes the top 500 corporations in the US into account. It gives a good indication of the whole market in the USA because those corporations represent approximately 80% of the total value of the U.S. stock market.   

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