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Consulting Insights

Stock Market Basics

The ABC to knowing what the Stock Market is and how it works.

Definition

   Trading involves transferring the ownership of goods and services  from one person or entity to another in exchange for other goods or services or for money.
A share of stock is a small fraction of the assets and earnings of the company. Either saying share, equity, stock, all of these are the same.
  

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Background

   There is evidence that exchanges  took place since Stone Age when trading obsidian and flint.
   As people settled in Mesopotamia and Egypt in 3000 BC. trading started to expand. Cities started to copy their trading systems and suddenly, long distance trade occurred.
As time passed by, it started to spread across continents linking cultures for the first time in history.
   However, some products and services  were not easy to trade, therefore, coins started to be manufactured by China.
 

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How does the stock market works?

   The stock market is the market where investors and businesses meet to make transactions and manage their money.
   A company only have two ways to raise money to cover start up costs or expand their business: they can borrow money or sell stocks.
   The disadvantage of borrowing money, is that they have to pay back with interests.
   By selling stocks, there is no interest to pay.
   In order to sell their stocks, they issue shares of their company to the public known as IPO- Initial Public Offerings . They are often issued by smaller companies seeking the capital to expand, but also by large companies looking to become publicly traded.
   So here's what usually happens:

If more people buy a stock than selling, the stock price goes up.
If more people are selling than buying, the stock price goes down .
 
   However, a stock may be bought or sold only if it is listed on an exchange. Investors buy and sell the shares to one another on the stock exchange.
 
   There are many stock exchanges in the world, however NYSE- New York Stock Exchange is one of the most important exchange places in the world. It was founded in 1792 by stockbrokers and merchants. Currently it has stocks for General Electric, McDonald's, Citygrup, Coca Cola and Walmart. Most of their trading is done face to face, also known as listed exchange.
Prices are determined using an auction method where computers play a high role in the process.
 
   As a conclusion, modern companies require a lot of capital for their operations. Markets help these companies to raise money with the help of people. In this case,'its a win-win relation.
 
Bibliography:
http://money.howstuffworks.com/personal-finance/financial-planning/stocks6.htm
http://www.investopedia.com/university/stocks/stocks3.asp
http://www.ancient.eu/trade/
AOL Course- Basics of the Stock Market

Atzin Z.

Atzin was born and raised in Monterrey NL. She has been working for several years in the Quality Assurance field and has a BS in Management Information Systems. One of her favorite things to do is spending time with her dogs and trying to teach them tricks.

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