Updated Jan 25, 2022

what is stock market

What does "stock" represent in the term “stock market''?

The stock market is a term that every one of us has heard in multiple instances of our daily lives. But only a few of us know about what "stock" refers to in the stock market.  Basically, it is a term that defines the ownership of the company. Being an owner of a specific company’s stock gives you the power to vote in meetings involving other shareholders and business practices. Investors who own a greater number of stocks have significant voting power. In simple words, the greater the stocks, the more you can control the company indirectly with your right to choose the board of directors.

What do you mean by the stock market?

The stock market refers to a platform to sell and buy the shares of different companies which have their names listed on the exchanges. Here are a few important terms used in the stock market:

Bear Market: A scenario where share prices drop sharply from recent highs.

Bull Market: A scenario where stock prices consistently increase over a long haul.

Volume: It defines the average stock numbers being traded at a given time.

Dividend Yield: It defines how much a company is paying each year to shareholders in the form of dividends in comparison to stock price.

How does the stock market work?

The stock market works by helping companies to raise money by sales of stocks' shares to fund business operations.  And it also generates and sustains fortune for individual investors. Here companies sell ownership stakes to interested investors.

The equity stakes are termed as shares of stock!

Companies enlist the shares for sales on the multiple stock exchanges making up a stock market. By doing so, companies attend the capital requirement they need to run and develop their businesses without getting into any debt.

In return for the allowance to sell stocks to the public, companies are obligated to disclose needed information and provide shareholders the right to have their opinion on how businesses should run.

How do investors benefit by participating in the stock market?

Investors get the advantages by acquiring shares on the stock market in exchange for their money. As companies use the money of investors for expanding their businesses, investors enjoy the increased value of their share of stock over time. Aside from this, when the businesses make profits, these companies pay dividends to each of their shareholders.

However, note that individual stocks will perform differently from one another over time. also deta suggests that stock market is safe and one of the reliable approaches to grow your money in long term.

What is the meaning of a Stock Market Index?

A stock market index works by tracking the performance of a particular group of stocks representing an industry or stock market's segment such as energy, transport, and technological sectors. Below are given two large stock market indexes used in India to determine the performance of the market:

S&P BSE Sensex

The Bombay Stock Exchange Sensex contains the top 30 biggest and consistently traded stocks. The S&P or Standard and Poor's (international credit rating agency) tag is attached with BSE since it leverages the technical expertise license of S&P.

CNX NIFTY (NIFTY 50)

The share market index comes under the top 50 biggest and regularly traded stocks. The joint-venture organization between National stock exchange NSE and Indian credit rating agency CRISIL manages the NIFTY 50.

What procedure is followed to decide the stock price?

In general, the stock price depends upon supply and demand. Basically, the stock market contains two groups: buyers and sellers. As the name suggests buyers group buys the stocks and the sellers groups sell them. A potential buyer tends to bid certain price money for a particular stock, which should match the price money that a potential seller is willing to approve for the same stock.

Once the bid price from both groups matches, a stock trade takes place. But if more buyers are willing to buy at a given price, then the stock price is decided.

In this scenario, if there is a greater number of buyers in comparison to the number of sellers, the stock price will be high. On the other hand, if the number of buyers is less than the number of sellers, then the stock price will decrease.

Conclusion

Hopefully, you found this guide helpful. The article consists of fundamental knowledge of stock marketing that everyone should be aware of. However, we advise you to take guidance from the experts in the field before jumping into the world of the stock markets.