A Simple Way to Understand the Stock Market

As COVID-19 unemployment persists and imposes upon financial wellbeing, many people are researching different ways to make money. With this in mind, the start of 2021 saw a significant rise in stock market research and trading. Therefore, making stock related questions one of the most googled trends in the first two weeks of the new year. In addition to learning about trading stocks, bitcoin-related searches rose by 58%.

So, what is the stock market? And how does it work?

Dating back to the 1600s, early trading companies moved goods like silk, gold, china, spices, art (and looted artifacts) across the globe using hundreds, and possibly thousands, of ships. However, such expeditions are expensive, so these trading companies sparked early trading agreements with wealthy private citizens. As a result, private citizens invested in these trade ships, supporting the voyages in exchange for shares in the profits. The early mass movement of goods also led to the development of insurance markets – though that is another story in itself. 

Investing in trade companies and their ships lead to an expansion of trade routes and a generous increase in profits, eventually resulting in the sales of shares to everyday people within coffee houses and shipping ports across the European continent. Thus, unknowingly sparking the stock market. With this in mind, companies have been collecting funds from willing investors for more than four hundred years. 

 Of course, the modern stock market is much more complicated, but the idea is more or less the same. 

Stock Market Today

For example, today a company will pitch its platform to major investors, who are given priority investment should they believe the company to be a good idea. Therefore, supporting the pitching company’s Initial Public Offering (IPO), which launches the company onto the Official Public Market. Once on the official public market, any company or individual who believes in the company’s success can buy a stock. 

When a stock is purchased, the investor becomes a partial owner of the business. In other words, each stock is essentially a tiny piece of the company it came from. These investments aid in the growth of the company, which may result in more investors willing to buy stocks in the future. If demand for the stocks increases, the price of each stock will increase as well. At the same time, stocks already owned also increase in value.

However, should the company’s products decrease in value or demand, investors will try to sell their stocks before the company depreciates further. Maybe it goes without saying, but as stock sales and demand decrease, the value of the stocks follow suit. This can result in a major profit loss for investors. 

The relationship between supply and demand is reliant on many factors. For instance, the market may be influenced by things like changes in materials, production technology, and costs of labour. Even more, PR, leadership, and laws also impose themselves as influences upon investment. 

Stock markets follow these changes, or variables, daily. Should a stock appear to be losing value, investors will pull out, resulting in an actual loss of the company’s overall value.  However, since these variables are linear, they can sometimes be predicted, and most certainly followed, but are most appropriately regarded as wildly unpredictable. Therefore, long term investments are usually more profitable than quick investments trying to return fast cash. 

All things considered, anyone can invest within the stock market, not just the rich and powerful. 

Learn more about how to start investing in the stock market.