HOW DOES THE STOCK MARKET WORK?

By | October 10, 2020

The Dutch East India Company employs hundreds of merchant ships to trade in gold, ceramics, spices, and silk all over the world. This is not a small expense. In order to obtain sufficient funds to support these expensive voyages, the Dutch East India Company turned its attention to the public. Everyone who can contribute to the sea trade will get a part of the trade profits in exchange. This approach enables the company to afford larger voyages and at the same time brings higher profits to smart investors and the company. 

These shares were sold in cafes and ports all over Europe. In this way, the Dutch East India Company unknowingly invented the world’s first stock market. Since then, companies have followed suit and raised funds from potential investors for various businesses. Nowadays, many schools, professions, and even specialized TV channels are dedicated to teaching people to understand the operation of the stock market. But the modern stock market is much more complicated than it was in the past. So, how should companies and investors use this market today? Let us imagine a new coffee company that decides to enter the market. First, the company will market itself to large investors. If investors think that this is a good idea, they will get the investment opportunity and will fund the company’s initial public offering (IPO). This allowed the coffee company to enter the formal public market. Here, any individual investor or company who believes it will be profitable can buy stocks. 

The way of stocks makes investors become shareholders of the company. Their investment will help the company grow, and in the process, more people will see its potential and buy more shares. When the demand for the stock continues to grow, the price of the stock will rise, and for those who hold the stock, the value of their stock will also rise. For the company, the newly added benefits will not only fund new projects but also increase the company’s overall market value through the willingness of many people to invest in the However, for some reasons, when the company is not so profitable, the opposite of the previous situation may happen. If investors believe that the value of the stock they own will decline, they will sell the stock in their hands and hope to make a profit before the company drops in price. 

This caused the demand for the stock to continue to decrease, the stock price fell, and the company’s market value also fell. Unless the company’s profitability begins to improve, investors will face large losses. Many factors will affect this balance of supply and demand. First, market forces are inevitable for all companies, including fluctuations in raw material prices, changes in production equipment and technology, and changes in labor Investors may also worry about leadership changes, bad publicity, or bigger reasons such as new laws and trade policies. Of course, many investors will also sell expensive stocks at any time to pursue personal interests. These variables will interfere with the market and affect the company’s success. In the stock market, a decline in market value will result in the loss of investors and the true loss of stock value. People’s confidence in the market has a great effect. It can promote economic prosperity and cause economic crises. 

This uncontrollable variable is why many experts recommend reliable long-term investments rather than making quick money. However, experts are constantly looking for new tools to increase their chances of success in this unpredictable system. But the stock market is not specially prepared for the powerful. In the Internet age, many investors buy stocks in the same way as large investors every day. More people teach themselves the operating principles of this complex market, they can also trade stocks, support the companies they believe in, and pursue their own financial The first step is to invest in it.

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