What is the stock market? How does it work?

Mohammed Abdelkhalik
April 30, 2021

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Education article: Basics about stock market

Investing in the stock market is one of the most popular ways to build wealth and save for retirement, although you don’t need to dig into market data for hours every week to succeed, having some basic knowledge can help you better understand the risks involved and how to mitigate them as best you can.

Often the news coverage of the markets is amplified by some brokers and a series of terms and unfamiliar language and the threat of a catastrophic collapse hanging on the procedures, but despite all this noise, the stock market relies on a set of easy-to-understand concepts, the basic rule of the market is as follows: Sell Equity companies (partial ownership in the company) for investors in order to raise money, and as the value of these companies increases or decreases, the value of your investment will increase and decrease.

How does the stock market work?

To know how to trade shares, we need to know the goal of the stock market, as it allows companies to trade specific shares for each company called shares. When a company decides to issue shares to investors, it offers partial ownership in the company. The issuance of shares helps companies raise money and distribute risks, and instead of Find investors one by one. Qualifying companies offer their shares on the stock exchange.

In the secondary market, investors buy and sell shares on a stock exchange like the New York Stock Exchange or Nasdaq. Stock investors may be large entities such as commercial banks or they can be individuals, and instead of buying shares from the issuing company, you can buy them from someone who already owns them.

The main drivers of stock prices

The share price fluctuates according to supply and demand, investor confidence, global events, and information about the company’s profits, the price will rise if there are more buyers trying to obtain it than the sellers who sell it, and vice versa also, if the number of sellers is more than the buyers, then the sellers will reduce their prices to take into account that.

Experts advise investors to take caution when trading stocks during big peak price moments, for example, Shares such as GameStop Corp (GME) and AMC Entertainment Holdings (AMC) rose sharply in January 2021 after individual investors pushed prices for companies that were hit hard on Short, this forced short-positioned traders to buy more shares in an attempt to mitigate their losses, leading to a frenzy that led to higher prices.

Now, with these trades losing momentum, experts are reminding investors that volatile prices are fraught with risk.

With all the variables it is difficult to tell about rising stocks, it is good to be suspicious of any “important advice” or guarantees of astronomical returns, if it sounds too good to be true, it probably is.

How to invest?

If you want to get what the stock market offers, you will not have to travel to New York, you just need a brokerage firm to act as your representative, the Internet has made this process simpler, there are many brokers who provide their investment services with high transparency and have great reliability, but It is imperative that you carefully research your broker.

Author Mohammed Abdelkhalik

Professional Trader and Analyst, economist in Financial and Forex market since 2004.holds an MBA from the American University in Egypt. Mohammed works as an economic writer and technical & fundamental analyst for many international Forex and financial trading companies in both English and Arabic on a daily basis.