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The stock market is known as the public markets for purchasing, issuing, and selling stocks that trade over-the-counter or stock exchange. Stocks, sometimes known as equities, are fractional ownership shares in a firm, and the stock market is a venue where investors can purchase and sell such investable assets. Because it allows enterprises to quickly obtain cash from the general public, a well-functioning stock market is critical to economic progress.

The Stock Market’s Goals – Capital and Investment Income

The stock market provides two critical functions. The first is to provide financing to businesses to help them fund and expand their operations. Suppose a corporation issues one million shares of stock at $10 each. In that case, it will have $10 million in capital to build its business. The company avoids accruing debt and paying interest charges on that debt by offering stock shares instead of borrowing the funds needed for expansion.

The stock market’s secondary aim is to allow investors – individuals who buy stocks – to participate in the profits of publicly traded corporations. There are two ways for investors to earn from stock purchases. Some equities pay out dividends regularly (a given amount of money per share of stock someone owns). Another strategy for investors to profit from stock purchases is to sell them for a profit if the stock price rises above their acquisition price. For example, if an investor purchases shares of a company’s stock at $10 per share and the stock’s price climbs to $15 per share, they can sell their shares and profit 50% on their investment.

How does the stock market work?

The workings of the stock market are relatively straightforward. Buyers and sellers can negotiate pricing and conduct trades on the stock market.

The stock market comprises a network of exchanges. An initial public offering, or IPO, is when a company sells its stock on a stock exchange. Investors buy those shares, allowing the company to raise funds to expand its operations. The exchange then tracks the supply and demand of each listed stock, allowing investors to purchase and sell these stocks among themselves.

The price of each security, or the levels at which stock market participants — investors and dealers — are willing to purchase or sell, is influenced by supply and demand. The performance of several stock market indexes is frequently tracked and reflected in the overall performance of the stock market.

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