What is Stock Market? Let's Understand it

When I was young, I always used to ask myself that why some people remain so mad about Stock Market and what actually is a Stock Market? Why we suddenly see people making billions of dollars in months or losing billions of dollars in days? Therefore, through this article I am trying to make it simple for others to understand what basically is Stock Market and how it functions. The most basic work of any stock market is to facilitate trading in various company stocks and derivatives.

Stock Market provides an easy option in front of companies to borrow money from people and financial institutions by offering company stocks in return to them. Any Stock is listed on Stock Market at particular face value plus premium value which is determined by various agencies affiliated with Stock Market. For example if a stock has face value of Rs 10 and premium value of Rs 100 then this stock will be listed at Rs 110 on stock market and will be available to people at this price.

Face value is termed as actual value of stock (which never changes) while premium value is risk or time or extrinsic value which is paid to seller for reducing the risks of selling stocks to buyers (changes with demand). After listing on Stock Market, any stock becomes available for trading on open stock market. Now stock becomes totally dependable on market reactions and demands. Stock moves up in the Stock chart and value if there are more buyers for it at higher value, however, stock moves down if there are more sellers for stock at lower value. Investors reward good performing company stocks by buying them abd thus increasing their value, while investors punish bad performing company stocks by selling them and thus decreasing their value.

However, there are many exceptions in Stock Markets where many Stocks increase on speculation and despite bad performance by companies. Therefore, Stock Markets become unpredictable where people can simultaneously make huge amount and also loses it in minutes. However, with proper planning and long term goals people can make good returns from Stock investments.

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