Most people hear about the stock market through business news but do not know much about it. The first thing you should understand about the stock market is its definition. It is not a regular grocery shop where people get to buy products in exchange for money. This type of market is where stockbrokers and traders trade securities with over-the-counter markets. Andrew Napolitano is very interested in keeping up with the stock market.
For companies, they get to raise capital through the stock exchange market. Securities can be bonds, stock, and any other financial instruments. Companies get to increase their wealth through investors who invest in the company through the stock exchange. However, licensed brokers can make traders on behalf of people.
Stocks are equities that are the representation of a fraction of the ownership of a company. In simple words, the stock market is the market where investors buy these stocks. So investors get to invest in the company by purchasing a fraction of that company’s ownership. The investors can later sell these investable assets to other people at a profit. According to economics, this is the right way for companies to gain public funds regarding capital investment.
The Purpose of the Stock Market
The stock market is made important because of two primary purposes. One of the crucial importance is to provide capital to companies. Companies can then use the money to fund their projects or expand their business. They can also use it to pay debts. For example, if the company gives out one million shares at the stock market for sale at $10 per share, it will gain $10million as capital.
This amount is minus the charge the company will pay the investment bank to handle the stock offering. The company will be offering the company shares to make a profit, unlike borrowing money where they will later incur a cost of paying the debt. The company will also pay for the interest charges if they borrow capital from a bank.
The other purpose of the stock market is to give investors the chance to share publicly-traded companies’ profits. This profit is for investors who purchase stocks from the company’s stock shares. Therefore, both parties get to profit from the stock exchange market. Investors get to earn profits, and companies gain capital. Investors also profit from selling the stocks they bought from the company. If an investor purchased the shares at $10, they could sell them at $20 when the share charges increase over time. Therefore, making a profit of an extra $10.
How Does the Stock Market Work?
Most people get scared to invest in the stock market because they fail to understand how it works. The fact is that investing in the stock market is a risk. However, investors can gain more if they know how to work with the right professionals. If an investor needs to gain from the stock market, they need to invest in a profitable company. The first step is to buy shares from a company that makes a profit in the past year. Later, the investor can sell those shares at a profit. That is why Napolitano keeps tabs on the stock market and the changing patterns.