To know how does the stock market works, you have to first know the all market participants in stock market. There are four participants in stock market.
- Regulatory Bodies
- Stock exchanges
- Investors and Traders
What are Stock Exchanges ?
Stock exchanges are exchanges where financial instruments like stocks, options, CFDs are traded. All the market participants have to registered with stock exchanges and regulatory bodies. Companies which are issuing shares, brokers have to registered with regulatory bodies. Regulatory bodies make some rules of conduct which must be followed by companies and brokers.
This section will taught you how stocks comes through IPO first and how investors and traders start buying and selling shares of company. We have written some other blog post for stock markets beginners. You can read them to know more about stock markets.
Stocks Picking Strategies for Beginners – Fundamental Analysis, for knowing what things you should consider before picking up stocks to buy.
Best Way to Trade Support and Resistance: Technical Approach – A simple and powerful strategies to find out profitable level to buy stocks.
Which is better Forex or Stock Market: Pros and Cons – If you are beginner and confused which market is suits for you then you should read this blog post.
Simple Money Management Techniques – Know how to make a good money management strategies.
4 Technical Tools For Predicting Stock Markets Trend – Which technical tools professional traders for prediction of share price.
All the companies who want to be listed on stock exchanges for public trading, they have to first gets listed in Initial Public Offering(IPO). IPO is primary market where all the documents, details about the company and stocks are given. During the listing shares are issued through primary market are given to investors. After all the procedure completed stocks are listed for public trading.
Once the company stocks are issued for all these stocks are then traded by investors and traders in the secondary market. Secondary market is the market where most of the trading occurs. In it most buyers and sellers gather to conduct buying and selling transaction to make profits or cut profits. Stock exchanges have many brokers and brokerage firms registered with regulatory bodies.
How orders are made?
When you buy orders brokers passes that orders to the stock exchanges where searches started for sell orders for the same share. When sellers are found for the same share you have bought, price is agreed and finalized. Once orders are finalized you will get messages that your orders have been confirmed. Today’s trading process has become electronic. Matching of sellers and buyers are done through computers within minutes. There are many brokers and brokerage firms provide online trading for their clients.
Today’s there are thousands of traders and investors all around the world. It becomes impossible for gathering these investors and traders. So the brokers and brokerage firm play role. When you make an orders then it is passed to brokers and then exchanges and in between there are many parties involved. Exchanges check the default status ( Money or Margin) of buyers and sellers before actual transfer of ownership of shares. Actual transfer is also known as settlement. Settlement are done generally in one day. For example, if you have done trading today then settlement will be done tomorrow. Earlier it was taking more than two weeks.
Stock exchanges main role is to ensure that trade is honored during the settlement period. If settlement is not done, then sanctity of stock markets ( Demand is lost) is lost so in exchanges trades may not be upheld.
Buying and selling of shares fluctuate the stock price. Like other goods demand and supply affect the stocks. When demand increase stock price increase and when supply increases then stock price decrease. So when you look at the chart of stocks usually you see green and red price movements. Generally green means increase in value share price and red decrease in share price. All these red and green changes are due to buying and selling of stocks. Remember the larger the volume of trade the greater is the fluctuation in stocks price.