WHAT IS STOCK MARKET ? | Financial Market and institution | FMI

Introduction

This tutorial provides a comprehensive overview of the stock market, explaining its functions, the significance of stocks, and reasons for investing. Whether you are a beginner or looking to refresh your knowledge, this guide will help you understand the basics of the stock market and its relevance in finance.

Step 1: Understanding Stocks

• What is a stock?
  • A stock represents ownership in a company, giving shareholders a small percentage of that company.
• Purpose of selling stocks:
  • Companies sell stocks to raise capital for various needs such as expansion, research and development, and paying off debts.

Step 2: How the Stock Market Works

• Initial Public Offering (IPO):
  • Companies list their shares on an exchange through an IPO, allowing the public to invest and raise funds.
• Buying and Selling:
  • Investors purchase shares, which can then be traded among themselves on the stock market.
• Price Fluctuation:
  • Stock prices are determined by supply and demand.
    • More buyers than sellers leads to higher prices.
    • More sellers than buyers leads to lower prices.

Step 3: Reasons Companies Sell Stock

Companies sell stock primarily to

• Expand their business operations.
• Invest in research and development for new products or improvements.
• Manage and reduce existing debt.

Step 4: Reasons for Investing in the Stock Market

• Goals of investing:

  The primary aim is to make money through

  • Dividends: Some companies distribute part of their profits to shareholders.
  • Capital appreciation: If a company performs well, its stock value may increase, allowing investors to sell their shares for profit.

Conclusion

Understanding the stock market is crucial for anyone interested in finance and investment. By grasping how stocks function, how companies utilize the market to raise funds, and the motivations behind investing, you can make informed decisions about your financial future. As you progress, consider exploring specific investment strategies or seeking further education on financial markets to deepen your knowledge.