What mechanism stock market follows ??

Meaning of stock market :

Stock market is a market where companies which are publically held are issued and they are traded either over exchange or over the counter. It is one of the most vital component of free market economy as it offers companies with a path to raise capital by giving investors a part of ownership in their company. Stock market provides a medium to grow your capital and become wealthy.

Working of stock market

Stock market is divided into two main sections : Primary market and Secondary market. Primary market is one where new issues in form of IPO's (Initial Public Offering) are traded and in secondary market trading on securities which already exist in market occurs. Companies requires capital to carry out various operational and functional activities . If a company is raising funds for the first time then he will primarily launch its IPO. Here the company's overall worth and the amount of shares being issued will determine the price of its shares.

To buy a share of particular company an investor must have a demat account. Demat account can be opened with registered brokers or discount brokers. A huge some of money spent on brokerage can be saved if an investor opens his account with a discount broker. After opening an account he becomes eligible to invest in shares. Once he buys shares of a particular company he gains a part of ownership in that company depending upon the number of shares he is holding.The capital which he invests is further compensated with returns and dividends offered by the company.When companies are performing good investors gain in terms of returns and dividends.

Also when the company under performs the investors may loose their money.At such situation company's stocks are undervalued and investors have to sell the stock at loss. For every transaction to be executed two parties are required buyer and seller. When a company under performs and price of its stocks decreases then seller becomes aggressive and try to lock their profit or reduce their risk. The price of stock will continue to fall until it achieves a point when buyers will become aggressive and start buying. Stock market facilitates investors participate in all the financial achievements which a company gains over a period of time. Efficient financial planning is must needed now a days. To grow capital in an efficient manner stock market is a good platform for traders and investors.

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