The concept behind how the stock market works is pretty simple.

What is a Stock Exchange and how does it work

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Today, we discuss about what is a Stock Exchange and how does it work? The scholarship is nothing more than a huge global network that tends to organize the market, and where every day huge amounts of money circulate. In total over sixty trillion (60,000,000,000,000) euros are traded annually. More than the value of all goods and services throughout the economy of the world as a whole. However, it is not the apples or second-tooth brushes that are marketed in this market. But mainly securities are traded. Securities are equity, which are mainly in the form of shares [share = partially translated]. A “share” means a share in a company. But why are shares traded? Well, first we need to know that the value of the stock is related to the company it belongs to. If you think the value of the company compared to a pizza. The bigger the size of the pizza, the bigger each part of it.

What is a Stock Exchange and how does it work

Lets understand what is a Stock Exchange and how does it work by example. Facebook is able to increase profits massively through a new business finance model. The size of the pizza will also increase, and as a result, the value of its parts will increase. This is of course a good thing for shareholders (stock owners). A share that, let’s say, was worth 38 euros, can now be worth 50 euros. If sold at the new price, a profit of 12 euros per share is realized! But what does Facebook benefit from all this? The company can raise funds by selling its shares and investing the proceeds to expand its business. Facebook, for example, has earned sixteen billion dollars from the sale of shares on the stock exchange. However, stock trading is often a game of chance. No one can say which company will perform well and which will not.

If a company has a good reputation, investors will support it. A company with poor reputation or performance will have difficulty selling its shares. Unlike normal markets where goods can be touched and sent home, on the stock exchange only virtual goods are available. They appear in the form of stock prices and charts on monitors. These prices can increase or decrease within seconds, therefore the owners of stock should be quick so as not to miss any opportunity.

Even a mere rumor can lead to a sharp decline in demand for shares regardless of the true value of the company. Of course the opposite can happen. If a large number of people buy weak stocks because they have noticed potential behind that idea, the value of those shares will increase as a result. Especially new companies can benefit from this, although their sales may decline. They can generate cash using other ways (e.g sell them to private individuals).

The best possible scenario could be the idea turned into reality. Whereas as a worst case scenario a speculative bubble with nothing but hot air in it can result. The experience teaches us that bubbles are destined to burst. The value of the thirty largest German companies is summed up in what is known as the Stock Index (DAX). DAX shows how well or how poorly these big companies. The economy in general, are performing at the present time. Stock markets of other countries also have their own indexes. All these markets together create a global trading network.

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Irma Terry

Irma Terry loves To talk about Finance, Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.