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The Basics of the Stock Market

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In the stock market, you can make money by buying and selling stocks. Prices of stocks rise and fall depending on demand and supply. Several factors can influence the price of a stock, including fundamentals such as revenues and earnings per share. Other factors, such as inflation, industry performance, and liquidity, can also have an impact on prices. Investors’ sentiment can also affect price movements.

Risks are inherent in stock trading. The amount of risk a trader faces will be determined by how much of a stock he or she holds. Traders who sell a stock at a higher price make profits, while those who sell it at a lower price may lose. Traders’ profits and losses are proportional to the amount of shares they buy and sell.

There are two main stock exchanges, the NYSE and the Nasdaq. These are the largest exchanges in the world. These exchanges serve as the primary marketplace for buying and selling shares. Companies list their shares on these exchanges after meeting stringent criteria. These companies are typically in the financial, manufacturing, or natural resources sector. Investors buy and sell stocks through brokerage accounts on these exchanges.

Understanding the basics of the stock market can help you make better decisions. The stock market works like an auction system. Potential buyers place bids based on the price they want to pay and sellers set their ask prices. Once these prices match, shares exchange hands. Traditionally, trades were done on stock market floors using a system known as the open outcry system. Market makers would yell out the prices that a share could be bought or sold for. Nowadays, the market is mostly conducted electronically, which makes it possible for millions of people to participate in the market.

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