What is the stock market?
The stock market is a global financial and economic instrument, the main function of which is to regulate the turnover of securities by buying, selling, exchanging, or pledging. In addition to shares, bonds and bills are traded on the stock market. The first stock exchange opened in Amsterdam in 1611, and in its present form, this market started in New York in May 1792.
The second extended definition of the stock market can sound like this. The stock market is a segment of total capitalization that allows you to trade stocks on the exchange and in the over-the-counter format. Together with the financial and credit market, this impressive capital sector is shaping the global economy. Today the well-known Forex currency exchange provides an opportunity to make money on stock assets.
Many start-up companies do not have large capital at their disposal, and the development of progressive ideas and technologies requires serious money. In this case, before the start of a business project, securities are issued – shares that are acquired by investors in the hope of an increase in value and annual dividends.
Often, at a certain stage of development, a commercial enterprise also issues primary shares or offers additional volumes of auction assets for sale. In all cases, shares and other securities are traded on the stock market through centralized exchanges or autonomous brokers.
Key Stock Market Opportunities
- Receiving a stable income in the form of dividends from purchased shares.
- Evolution of promising commercial projects with the attraction of funds from third-party investors.
- Making a profit through the purchase and sale of securities within the framework of changing quotations (trading).
- Provision of equity capital for trust management to successful brokers and traders with the receipt of appropriate remuneration.
- Additional emission, allowing developed commercial projects to reach a fundamentally new level of development and profitability.
Three main segments of the stock market
Primary (starting) market. This is where young companies sell their shares through listed operators. This is where big money usually turns in the search for innovative projects with the prospect of rapid growth. The main players in this segment are large investment banks and hedge funds that carefully analyze upcoming startups.
Secondary (trading) market. In this sector, there is an active sale and purchase of issued shares, which are sold at the current exchange rate. The companies that issued the shares no longer participate in these stand-alone transactions.
OTC stock market. There are two main players in this niche – a trader and a broker, who conclude deals between themselves remotely or by telephone. These are actively used by those working on the Internet. Currently, online trading is becoming the most popular profession for tens of thousands of Internet users.
What are the shares
The share is the most popular security, which confirms the owner's right to a part of the property of the corresponding enterprise with the receipt of dividends from profits.
Promotions fall into two main categories:
- Unprivileged securities. Such shares provide the holder with the right to participate in general meetings of shareholders and receive dividends in the usual distribution. It is these assets that are the main object of purchase and sale on the stock market.
- Preferred shares are usually distributed among the founders of the company and those close to them. Provide an opportunity to receive dividends and claim the property of liquidated companies on a priority basis.
To understand the prospects for investing in young companies' shares, it is worth recalling that at the start, IBM securities were worth only $ 1. Today the shares of this international corporation are quoted at $ 150 per share. Thus, in less than 30 years, the stock has grown 150 times, generating a solid annual return for large shareholders. And these are far from record growth rates, which, if the right decision is made, can become a source of powerful personal capital. Of course, stocks do not grow as fast as cryptocurrencies, but this stock asset compares favorably with high stability and payment of dividends.
How to make money on stocks
Today, the stock market uses the following basic strategies that allow you to profit from the purchase and sale of securities even with a small start-up capital:
- Search for undervalued shares with an investment in the prospect of an increase in value (value investors).
- Conclusion of trades taking into account the P / E ratio (price/profit), which is the amount in dollars that the trader must spend to get $ 1 of net profit. In this case, P is the price of one share, and E is the company's earnings per share, which is reported in the consolidated annual report. A small value of the coefficient (below 5) indicates that these shares are undervalued.
- Determination of the general market trend using the swing trading strategy. The essence of such operations is to calculate the general tendency of market transactions to rise or fall with the prompt conclusion of transactions on short positions.
- Use of CFDs concluded for the difference in price. The easiest way to get started with little or no preparation.
However, it should be understood that any transaction on the stock market carries certain risks. Minimizing these risks is the main task of professional traders and brokers. Today, operators working within the Forex trading platform are actively involved in learning to trade in the stock market.
The international stock market is sensitive to all phenomena in the economic and political life of developed countries. The more information a trader has at his disposal, the higher the likelihood of concluding a profitable trade in securities. In this case, the information used for analysis may be in the public domain. The main advantage of a professional stock or bond trader is the ability to see the hidden mechanisms of future significant events.
The stock market provides everyone with ample opportunities for profitable investments and current earnings on the difference in quotations. It is this segment of the world economy that can become a place for an interesting new profession of a trader.