Are you one of those people that wonder what is the stock market while wondering how the stock market works and what exactly are stocks. Probably not if you trade with us but for those of you who are new to the market and trading, here is a brief breakdown of what the stock market is and what it is not.

What is the stock market:

The stock market is a public entity (not a public place) where people trade pieces of a company in the form of shares for a price. This price is fluid and is based on the value of a company as well as the companies future potential. Supply and demand is at work here, there are many companies that are undervalued as well as many companies that are overvalued.

There are many different stock market exchanges throughout this country and the rest of the world. Stock exchanges are places where the stocks of public companies are listed and traded. The largest stock exchange in America is the New York Stock Exchange.

Who Trades in the Stock Market

The stock market is traded by anyone who wants to invest or trade in companies. A lot of individuals trade and invest in the market but they are not the only ones. There are hedge funds, mutual funds, banks, companies, and insurance companies that enter the market in varying degrees. They all have the same goal of making money while protecting themselves from any downfall in the economy.

Both individuals and the public corporations that were previously mentioned, trade the market in varying degrees with various goals. They all wish to turn a profit but some will be invested in safe securities that they hope will turn a profit, others will be involved in much riskier investments that could cost them a lot of money or if they’re correct, make a large percentage of cash for the person or entity investing.

Why Trade in the Stock Market?

Companies allow their company to be traded in the stock market to raise capital or funds to grow their company further. A company can sell off more shares to raise capital when it is needed and purchase them back at a later time if they choose. Many companies trade in their own shares which helps to increase the liquidity of their shares.

In recent history growth stocks have been the main choice in the stock market, especially in the early stages of a bull market. Is this changing now? Will value stocks begin to lead the market into the future? If you are uncertain what a value stock is, they tend to pay large dividends, trade at low valuations while having strong balance sheets. During the last few years of stock market trouble, growth stocks were supposed to lose their leadership role and value stocks were supposed to take over. This has not come to fruition we wonder why and what the future holds. Read More about Value Stocks