The stock market and how it works

stock market

The stock exchange or stock market is a market that works on collecting, issuing, and trading stocks, bonds, and other securities, which allows companies to support their capital by giving investors part of their ownership. The stock market is defined as the markets that include the presence of securities exchanges within a specific region or country, and depends on the existence of a value or price for the shares traded in it. Another definition of the stock exchange is that it is the activity that depends on buying and selling shares within a specific general level of their prices every day.

How does the stock market work?

Work is applied in the stock exchange (securities) by dividing its market into two types; They are the main market and the secondary market. The main market sells new securities for the first time by applying a set of subscription offers, and the founders often get most of the securities from investors. In the secondary market, all post-trading operations are carried out, and many investors participate in this market. whether from individuals or institutions.

The stock exchange usually works to achieve private trading in stock companies through a group of exchanges that bring together sellers and buyers; As the traded shares are included in trading deals, and it is possible to work on their implementation in an electronic way, and it includes the existence of two operations: buying and selling shares and all securities.

Buying securities (shares) whose prices rise or fall, and this is one of the encouraging reasons for many investors to buy a group of them in most professional sectors, and this thing is called diversification, and often the goal of buying diversified shares is to obtain money by dealing with shares Companies that are expected to make good profits, which leads to an increase in the price of their shares. As for selling securities (shares), it is a transaction that takes place between the seller and the buyer; When the share price drops, sellers seek to sell it, and buyers are willing to buy it, and often every buyer starts buying the offered shares when they reach a specific point in the price.

Benefits of investing in the stock market

Investing in the Stock Exchange offers a range of benefits to individuals and establishments, and these benefits are summarized according to the following points:

• Benefit from the growth of the economy and the profits of enterprises: Because the growth in the economic sector contributes to the production of income, which leads to enhancing the demand for products, and this results in an increase in the value of private cash revenues in companies.
• Ease of purchaseIt is possible for the investor to buy securities and shares in an easy way through the presence of a broker or financial analyst, or by relying on the Internet.
• get money, which is done by applying two methods, namely:
  • Buying securities at low prices, and then selling them at high prices, and this behavior is one of the behaviors common to most investors who aspire to benefit from the profits of companies whose share prices grow with the passage of time.
  • Many investors prefer to get money by buying shares of companies that offer them financial profits. Because it achieves moderate growth.
• Ease of sellingThat is, if the investor needs to obtain money, some of his shares can be sold at any time, but as a result of the volatility of securities prices, the risk of bearing the loss may appear due to this sale.

Disadvantages of investing in the stock market

Investing in the stock market sometimes leads to the emergence of a set of negative aspects, and the following information about them:

• Loss of the entire investment: As it is possible for the investor to lose his entire investment in the event that the company loses and the price of its shares decreases, and the rest of the investors decide to sell their shares, which leads to the loss of all the initial investment for each investor, and as a result, the loss of all money within the savings or inventory category.
• Need a lot of timeIn other words, investing in the stock market takes a long time to choose between establishments, and to determine the extent to which each of them is capable of achieving profits. By following up on annual reports, financial statements, and special developments in companies, in order to obtain the best investment price for participation in the stock market.
• The emergence of fluctuations in stock pricesThe Stock Exchange faces a significant discrepancy in the prices of shares and all other securities, which influences individuals' decisions to buy and sell.
• The emergence of competitionNew investors face competition with professional investors and traders, or experienced people who have the time to invest, unlike individual investors who need to know how to gain this advantage.

stock terms

The success of the stock market in the investment process depends on it being characterized by a set of conditions, the most important of which are:

• the size: One of the necessary conditions for the stock exchange; Whenever it contains many companies, this contributes to an increase in the total value of the shares traded in it, and it also helps investors to diversify risk, and not focus on a limited number of securities.
• Liquidity: The possibility of obtaining money through securities, and when the size of the stock market is large, the percentage of liquidity is high in the market.
• Transparency: The ability of the stock market to continuously provide appropriate information about the companies within it and all movements that include buying and selling to investors, and this leads to limiting manipulation of financial information, or a group of investors obtaining financial data before others.
• stability: The stock market’s ability not to be affected by sharp price fluctuations as a result of irrational expectations, and the impact of rumors on securities prices, which lead to an increase or decrease, and as a result, the prices of securities are far from their true value, so they do not reflect the nature of the actual performance of the entities that issued them. , such as companies.