Stock markets play a vital economic role, helping large
companies raise finance and giving access to an alternative
stream of capital alongside loan finance and company
revenue. The markets are heavily traded worldwide, with
billions in transactions processed every single day across
the major global exchanges. But how exactly do stock markets
operate on a technical level, and what is it about the
markets specifically that attracts the brightest and best
from all walks of life to make their fortune?
Stock markets provide the opportunity for traders to make
(and lose) fortunes speculating on the price of shares and
other securities. Savvy traders can interpret market
behaviour and try to anticipate movements in price to ride
both positive and negative trends across particular
companies and industries, allowing the free-flowing trade of
shares in both directions without the need for physical
interaction or negotiation of contract terms.
Shares are largely standardised instruments which enable
the free transaction from one trader to the next without the
need for registration or any further administrative burden.
They are the lifeblood of many growing plc's, and provide
strong indicators of economic outlook and prosperity. The
markets operate by creating a platform for buyers and
sellers of securities to meet and exchange their share
assets, which in and of themselves generate an often
tax-free ongoing yield in the form of dividend payouts.
Markets trade in real-time throughout the business day,
and constantly match orders on both sides of the table to
make fluid trading possible. Traders can either buy shares
in companies they forecast to perform well, or often sell
shares they don't yet own in the anticipation of buying them
back at a lower price point (known as short selling, or
'going short').
With the help of a broker, who executes the trades
automatically on demand, the trader is able to engage in
active speculation throughout the trading day, and indeed
across a wider timeframe of months and even years depending
on the exact nature of each trade. Brokers will often also
offer financing for certain trades, allowing traders to
'leverage' the gains (and losses) beyond the limits of their
own resources.
For those trades that are unmet by market demand, i.e.
those for which there is no corresponding buyer or seller, a
designated 'market maker' steps in to fill the order,
ensuring that shares can be traded freely even where the
markets take a largely bearish approach to a particular
stock or index.
The major global stock markets operate smoothly
throughout the day to allow live trading without the need
for exchanging physical share certificates or meeting face
to face. In this sense, the markets provide an ideal
opportunity for determined individuals and trading
organizations alike to invest, with the potential for
significant gains for the savvy trader.
