How does Stock Market work?

In the 1600s, the Dutch East India Company employed hundreds of ships to trade goods around the globe. In order to fund their voyages, the company turned to private citizens to invest money to support trips in exchange for a share of the profits. In doing so, they unknowingly invented the world’s first stock market.

 So how do companies and investors use the market today? 

Since than the companies have been collecting funds from willing investors to support all kinds of business, and today the stock market is so huge that it has school careers and separate TV channels, stock market is a whole different economic sector where people earn and lose money. It provides bread and butter to number of people.

The modern stock market is significantly more complicated than its original incarnation. If a new company wants to come into the market than the company will advertise its product or services to the new investors, if any of the investors think it is a good idea than they get the first crack at investing. Then the investors sponsor the company’s Initial Public Offering (IPO). This launches the company into the official public market where any company or individual can invest (buying stocks) in the company. Buying stocks in the company makes the stock holder becomes partial owner in the business. If the companies is profitable there will be more and more investment in the company as there is more investment the price of stock also shoots up (demand increases, price increases), it is also called increasing the cost for perspective buyers and raising the value of the stock people already own, this increase in investment helps the company to boosts its overall market value. By showing how many people are willing to invest in their idea. If a company seems less profitable the reverse can also happen. If investors think that their stock value is declining they sell their shares with hopes of making their profits before the value falls down more (demand for the stock declines the price of the stock declines) with the falling price the market value of the company all comes down, this can leave investors with big losses unless the company looks profitable again.

This see-saw of supply and demand is influenced by many factors’ companies are under the unavoidable influence of market forces such as fluctuating price of raw-materials, changes in production technology and the labour cost. Investors are worried about bad leadership, bad publicity or large factors as new laws and trade policies, all these variables which are day to day hurdles for the company which can make the company appear more or less successful, which may get the company more or less investment.

Human confidence in the market has the power to trigger everything from economic boom to financial crises.

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