Stock market: How does the stock market work?

 When it comes to the working of the stock market, the concept behind it is very simple. The stocks market is a platform that operates much like an auction house. The stock market is a platform that allows buyers and sellers worldwide to negotiate prices and make a trade. Therefore, the stock market works mainly through a network of exchanges. Some of the popular stock exchange platforms that might have heard of are the New York Stock Exchange and the Nasdaq. Companies' shares are listed on the stock market on an exchange through a process called an IPO or initial public offering.

In the stock market, the investors are the ones that buy these listed shares of stock. When the investors buy the shares, it allows the companies to raise money to grow their business. Once the company has been raised, money has successfully grown its business; the investors can then buy and sell the stocks among themselves. The stock exchange is the one that tracks the demand and supply of each of the stocks that are listed. Therefore, in the stock market, the demand and supply help determine the price of each security.

In the stock market, the supply and demand also determine the level at which the stock market participants, i.e., investors and traders, are willing to buy or sell. While buying listed stock shares, the buyer offers a bid or the highest amount that they are willing to pay for a particular listed share of stock. However, the buyers' bid is usually lower than the amount the sellers ask for in exchange. This difference is commonly known as the bid-ask spread. Therefore, if you want a trade to occur as a buyer, you need to increase your price. You need to decrease your price if you want a trade to occur as a seller.



Though buying and selling shares in the stock market may seem very complicated at first, computer algorithms do all the heavy work? In the stock market, all of the price-setting calculations are done by computer algorithms. Usually, when you are buying or selling stock in the stock exchange market, you will see the bid, ask, and bid-ask spread on your broker's website. However, in most of the cases, the difference will be only in pennies. Such differences should not be of much concern if you are a beginner and long-term investor.