Stock market always creates a buzz in the news but many of us are still opaque to the existence of stock market, why does stock market exist? This article would give you all needed details about stock market that are enough for an amateur to start with and why does stock market exist?

What is Stock Market and why does it exist?

Just like an ordinary market, stock market is a place where two parties interact and exchange of commodities take place. Unlike a mainstream market, stock market is a place where the dealer and buyer, instead of dealing in any physically significant commodity, deals with shares.

Technically, shares are defined as “The capital of a company is divided into shares. Each share forms a unit of ownership of a company and this is offered for sale so as to raise capital for the company.”

How does a stock market works?

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace.

Trade in stock markets means the transfer for money of a stock or security from a seller to a buyer. This requires these two parties to agree on a price. Equities (stocks or shares) confer an ownership interest in a particular company.

Participants in the stock market range from small individual stock investors to larger trader investors, who can be based anywhere in the world, and may include banks, insurance companies, pension funds. Their buy or sell orders may be executed on their behalf by a stock exchange trader.

A potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same stock. Buying or selling at the market means you will accept any ask price or bid price for the stock. When the bid and ask prices match, a sale takes place, on a first-come, first-served basis if there are multiple bidders at a given price.

So, why does stock market exist? The stock market is one of the most important ways for companies to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market.

Stock market crash

Stock market crash is another term which should be kept in mind. A stock market crash is often defined as a sharp dip in share prices of stocks listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public’s loss of confidence. Often, stock market crashes end speculative economic bubble.

Stock Market Prediction

Stock market prediction is the act of trying to determine the future value of a company stock or other financial instrument traded on an exchange. The successful prediction of a stock’s future price could yield significant profit. The efficient-market hypothesis suggests that stock prices reflect all currently available information and any price changes that are not based on newly revealed information thus are inherently unpredictable. Others disagree and those with this viewpoint possess myriad methods and technologies which purportedly allow them to gain future price information.

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