To understand the stock market, first we need to understand just what a stock is. A stock, otherwise known as a share, is a financial token or instrument that signifies ownership of a company in some proportion. Basically, if Amazon had 1000 shares and you bought one share, you would own 1.1 thousandth of Amazon. In reality, Amazon and companies alike have millions of shares. But that sums up the point. When you own a stock, that means that you own a portion of that company and as the value of that company increases so too does your stock price. There are also common and preferred stocks which refer to voting rights of a shareholder. Common stocks have voting rights in, preferred shares don't. When you have voting rights, you can vote on things like board elections, mergers, and other financial decisions. Preferred shares are called that because they get preference when a company pays a dividend, which is basically a split of the profit a company makes with the shareholder, and they also get preference in other financial situations. The next thing you might be wondering is why exactly companies will sell stocks.
The answer to that is pretty simple. To get money, stocks allow a company to raise massive amounts of operating capital with essentially no extra effort or product. The modern stock market often bases the value of a company on its potential earnings down the line, and this means that relatively small companies can earn millions or even billions if investors think that they can succeed in the future. If a company wants to sell their shares, they need a place to do it. Enter the stock market. Companies often list through one process called an initial public offering or IPO on an exchange. Exchanges are basically the platform that make up the stock market that actually handling the trading of stocks. IPOs and direct listings essentially change the status of a company from a privately held business to a publicly traded 1. IPOs can let company founders cash out their stake or just let the company raise money. Once a company stocks are listed on a Stock Exchange, the public can trade them. Usually prices will fluctuate based off of public opinion, but the more concrete trends and fluctuations are usually dependent upon a company's earnings and operations. These can be measured by PE ratios or price to earning ratios, as well as a variety of other complex metrics. Next, we need to understand how and why share prices fluctuate. The stock market is composed of millions of investors and individual traders who all feel different ways about a company. They all make independent choices, and the net of those choices result in the positive or negative movement of a stock. If more people buy, then the price has to climb. If everyone wants out of the company, then the price falls due to lack of purchasing demand. If there are more buyers, then the price will go up. If there are more sellers, the price will go down.
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