SHARETIPSINFO >> Articles Directory >> How stock market works, Must read for all investors and intraday traders
Every investor should know how actually the stock market works. Investors are the persons who invest their money in the share market. An investor is any party that makes an investment. When an investor wants to buy stocks, they need to do business with the brokerage firm. Brokerage firm is a dealer of stocks that acts as your agent when you buy or sell them.
Most of the stocks are traded in Stock Exchanges. Stock Exchanges are the special markets where buyers and sellers are brought together to buy and sell the stocks. Popularly known stock exchanges are BSE and NSE. BSE stands for Bombay Stock Exchange and NSE stands for National Stock Exchange. Basically a stock market is a public market for the trading of the company stock derivatives at an agreed price. Stock exchange is a structured and systematic system of trading and stocks are always sold to the uppermost bidder.
Share broker is a person or group of persons that buys and sells shares and other securities through market makers on the behalf of investors. Investors employ a full-time broker. The investor needs to contact the broker over the phone or personally to place an order for a certain number of shares of a particular organization if investor or trader is not doing online trading.
Factors that affect prices in the stock market include inflation, interest rates, energy prices, oil prices and international issues, such as war, crime, fraud and political unrest. There is a problem of spikes i.e. spikes are actually the sudden rise or drops in stock prices. They are extremely difficult to predict. So what actually inflation is? Inflation is a rise in price across the board. It means the economy is robust and customers are spending a lot of money. When inflation is too high, though, customers pull back and spend less. When organizations do not make money due to this particular reason investors lose their trust on the organization.
Many investors sell out their stocks because they think the stock is worth less and is only going to decrease in price. Interest rates- Federal Reserve System can raise the federal funds interest rate. When banks have to pay a higher interest rate, they often raise their own interest rates on loans and credit card accounts. When consumers don't buy things and businesses don't grow, companies' profits decrease, causing a stock price decrease. Energy Prices are always needed by people.
Natural gas and electricity keeps up warm. The demand for energy is pretty constant. Major changes in energy costs have a significant effect on the stock market. Oil Prices are to be looked after when the gas prices are high. Stock market tends to react negatively to high oil prices. International issues basically war tends to affect the stock market negatively. Consumers worry when CEOs steal money, politicians involved in serious scandals. All these factors cause changes in the stock market.
There're lot of actions that takes place between investors order and the confirmation.
For example:
Investors place the order with investor’s broker to buy 100 shares of the Reliance Company. The broker sends the order to the firm's order department. The order department sends the order to the firm's clerk who works on the floor of the exchange where shares of Reliance are traded (stock exchange). The clerk gives the order to the firm's floor trader, who also works on the exchange floor. The floor trader goes to the specialist's post for Reliance and finds another floor trader who is willing to sell shares of Reliance. The traders agree on a price. The order is executed. The floor trader reports the trade to the clerk and the order department. The order department confirms the order with the broker. The broker confirms the trade with investor.
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