A stock market, equity market, or share market is a collection of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately.
(Source - Smartchoice.pk)
A stock exchange is a marketplace where stocks are bought and sold. The stock market allows companies to raise capital by offering stock shares and bonds, and it allows investors to own a portion of a company and share in its profits through dividends and capital gains. The stock market is considered an indicator of the overall health of an economy and is watched closely by both individual investors and financial professionals.
Principles Of Stock Market:
The basic principles of the stock market are as follows:
· Supply and demand: Stock prices are determined by the forces of supply and demand in the market. If there are more buyers than sellers, the price will go up, and if there are more sellers than buyers, the price will go down.
· Company performance: A company's financial performance, including its revenue, earnings, and growth prospects, is a key factor in determining the price of its stock.
· Market sentiment: Market sentiment, or the overall mood of investors, can also impact stock prices. If investors are optimistic, they may be more likely to buy stocks, driving up prices, while negative sentiment can lead to selling and lower prices.
· Interest rates: Changes in interest rates can also impact the stock market, as they can influence the cost of borrowing money and the return on investments in stocks and bonds.
· Diversification: Diversifying your portfolio, or spreading your investments across multiple stocks and other assets, can help to manage risk and increase returns.
· Long-term perspective: It is important to keep a long-term perspective when investing in the stock market, as short-term fluctuations are normal and expected. Over time, the stock market has historically generated strong returns for long-term investors
History Of Share Market:
The history of the stock market dates back to the 1600s, when the Amsterdam Stock Exchange, one of the world's first stock exchanges, was established. The exchange allowed merchants and investors to trade shares of the Dutch East India Company, a major trading company.
In the 1700s and 1800s, other stock exchanges were established in Europe and North America, including the London Stock Exchange and the New York Stock Exchange (NYSE). These exchanges allowed companies to raise capital by issuing and selling stocks, and they provided a platform for investors to trade those stocks.
The stock market has undergone significant changes and developments over the centuries, including the introduction of electronic trading and the rise of online trading platforms. In recent decades, the stock market has become more accessible to individual investors, and it has grown to be a major source of investment capital for companies around the world.
Despite various market crashes and economic downturns, the stock market has continued to play a central role in the global economy, offering investment opportunities to individuals and institutions alike.
(Source - Investopedia)
Need For Share Market:
The stock market serves several important needs, including:
· Capital formation: The stock market provides a means for companies to raise capital and fund their operations, growth, and expansion. This can help spur economic growth and development.
· Investment opportunities: The stock market offers individuals and institutions the opportunity to invest in companies and share in their growth and profits. This can provide a source of passive income and help people build wealth over time.
· Price discovery: The stock market provides a platform for the buying and selling of stocks, allowing market forces to set the price of securities. This helps to ensure that the price of a stock reflects the collective beliefs of all market participants about its value.
· Liquidity: The stock market provides a high degree of liquidity, allowing investors to easily buy and sell stocks. This can be important in allowing people to access their funds quickly if needed.
· Economic indicator: The stock market is considered a leading indicator of the overall health of an economy. Changes in stock prices and market activity can signal shifts in economic growth and prosperity, helping investors make informed decisions about their investments.
· Improved corporate governance: Companies listed on stock exchanges are subject to increased scrutiny and regulation, which can help to improve their financial reporting, transparency, and accountability.
Disadvantages:
The stock market can have several disadvantages, including:
· Volatility: The stock market can be highly volatile, with prices fluctuating rapidly based on news, events, and market sentiment. This can result in significant losses for investors, especially those who have invested in individual stocks rather than a diversified portfolio.
· Lack of control: When investing in the stock market, you are essentially handing over control of your money to a company. You have limited control over how that company is managed and no guarantee of a return on your investment.
· Market crashes: The stock market is subject to periodic crashes, during which prices can drop dramatically and investors can lose a substantial amount of money.
· Information asymmetry: In the stock market, some investors may have access to better or more accurate information than others, giving them an advantage in the market.
· Long-term risk: While the stock market has generated strong returns for long-term investors, there is no guarantee that this will always be the case. Investing in the stock market involves taking on long-term risks, and it is possible to lose money over extended periods.
· Hidden fees: There are various hidden fees associated with investing in the stock market, such as brokerage fees, management fees, and other charges, which can eat into your returns.
· Market manipulation: Some investors and companies may engage in manipulative practices, such as insider trading, that can impact stock prices and harm other investors.
Written by - Narayanamanikandan B
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