Of course many people have heard of Wall Street, the New York Stock Exchange and the concept of investing in stock, but what exactly is a stock exchange? This question can be confusing for many; however the theory behind a stock exchange is quite simple. In this article, we will take a brief and simple look at how a stock exchange operates.
Simply put, a stock exchange is a market place. So what is sold at this market place? As the name implies, stocks or shares are sold between traders or stockbrokers. The most common type of stock represents an interest or a “piece” of a company that has listed itself on the stock market. “Securities” are also traded on various stock exchanges. A security is representative of various financial assets that can be valued for trade. For instance, the American government sells securities that represent a piece of debt; the value of this debt or security will fluctuate with the economy and other factors. There are many more assets that are traded or can be potentially traded on a stock exchange.
Although there are many factors involved, the price of a piece of stock is determined by demand. If many people want to invest in the stock, the price will go up with this demand and vice versa if many people would like to sell the stock. Of course, the physical value and performance of a company will have a great effect on the demand for their stock. However, independent factors can also have a bearing on the value, for example, the trend of the overall market.
Investing in stock can be a complicated process and many use the guidance of a financial advisor or personal stockbroker. Before making any decisions to invest in any market, it is wise to do the necessary research. Nonetheless, many investors use the stock exchange as a tool to capitalize their money.