What Are Stock Markets?



Of Bulls and Bears

A Different Market

Stock markets are just like any other trading places. Things are bought and sold. At a stock market a company raises capital by offering portions of itself to the public at a stated price. These portions are called shares. The shares of a company can be bought and sold. Whomsoever possesses a share owns a part of the company. After the initial purchase an owner may wish to dispose of all or part of the portion of the company owned. The selling price may be more or less than the original issue price. If it is possible to sell shares at a price higher than that for which they were bought a profit is made. Thus an income can be earned. The price of shares goes up and down by the minute or the day or the month. If the market is dominated by sellers the prices tends to go down. This is called a "bear" market. If buyers predominate prices will rise in what is called a "bull" market. 

Trading on Stock Markets

Entry to the market is a prerequisite for trading any commodity. Entry as a trader into the market is not easy to achieve as an individual. Trading is done by stock brokers who are members of the stock market. Brokers act for individuals in the trading of shares on a stock market. There are various levels of brokers that can be appointed by a person. A full service broker will, in addition to buying and selling shares according to instructions, provide information, advice, recommendations, statistics, education and other financial assistance. Some brokers will merely provide their membership of the market to a person and will simply buy and sell shares according to the wishes of the client. The broking fees of the latter are usually considerably lower than those of the former. 

Full Service Broker
On Your Own

Employing a "trading only" broker means that the shareholder must be aware of what needs to be bought and sold. There will be no help provided or warnings given with respect to the shares to be traded. A full service broker will be well protected by service conditions and disclaimers but it may well be possible to provide trading parameters upon which the broker can base recommendations. An individual can instruct, for example,  that there is an interest only in trading in low risk investments which provide a certain and sure level of return. It will not be necessary for the investor to have a detailed knowledge of the market or to study it on a daily basis. A trading only broker will simply do as instructed by the investor who is on his own so far as trading decisions are concerned.

Income Streams

Capital and Dividends

It is clear from the previous paragraphs that income can be derived from buying and selling share. Income can also come from holding shares and waiting for dividends to be paid. Companies are in business to make a profit. If they do so then the way that this gain is distributed to shareholders, the owners of the company,  is by way of dividends paid regularly in proportion to the number of shares held. Stock markets can provide a useful earnings base or subsidiary income benefit so long as there is expertise available and the risks are understood. The big risk is that stock prices can go up or down without warning.


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