Want to learn about the stock market concept? The very basic concept of the stock market is that each and every share of a stock represents a portion of ownership in an organization or corporation. Almost all organizations are founded by a small group of people and when they decide for a company to go public. The owners agree on sharing ownership by offering shares of a company to the general public and receiving money from buyers.
A company can have an end number of investors and so does it is the right of each one of them to profit if a company is heading towards the path of success via accomplishing its goals effectively and efficiently. They also may need to bear the loss of losing money if the company is performing poorly.
Once share comes down into the secondary market from there the cycle of share price up or down begins. The price of the share then keeps on fluctuating due to several factors i.e., political stability, inflation, unemployment, and many more.
Basic Concepts of the Stock Market
The two basic concepts of stock market trading are :
➤ Bull Market
➤ Bear Market
Let’s understand these two markets trading meaning & concepts in detail.
Bull market refers to the market where the value of the stocks is generally rising. The bull market is the market where most investors like to thrive in, here most of the stock investors are buyers rather than sellers of the stocks. Whereas, bear market refers to the market where the overall price of stocks declines.
Investors are still able to make profits even in bear markets via short selling. Short selling is the practice where an investor does not hold stocks but borrows stock from brokerage firms – who own shares of the stock. Then the borrowed shares of the stock are being sold in the secondary market by the investor and receive the amount on the number of the shares sold.
Now if the price of the stocks declines which is mostly hoped by the investor, then an investor can purchase a sufficient quantity of shares to return to the broker from whom shares were borrowed. Here investors can realize a profit by returning no. of shares they borrowed at a total price less what investors get for selling shares earlier at a higher price.
For instance, if the stocks of Company “A” is likely to decline from its current price of $10 per share. Now there’s an investor who put down what is known as a margin deposit to borrow 100 shares of the stock from the broker. Then he simply sells those shares at the current price of $10 per share which gives him $1000 ( 100 X $10). Now if the stocks of the company “A” fall to $5 per share then the investor can buy 100 shares at a price of $500 to return to the broker, leaves him with a profit of $500.