Stock Markets Exposed

How does the stock market work/function?

In the most simplest way, can anyone explain how it works? & what causes the stock market to crash?

Public Comments

  1. I wish I had a couple of months available to respond. I suggest you go to the library and check out some of the many books they have on this complex topic. No one can do justice to that question with a 30 word response.
  2. The stock market is a listing of companies who offer up shares of their business in exchange for your money up front. The shares of a company are listed on a variety of different exchanges such as the NYSE. You are basically investing in a company on belief that its earnings and profit margin will grow in the future. Stocks fluctuate in price due to the exchanging of shares. Buying/selling occurs after careful analysis and is influenced by many reasons such as world news, financial reports, changing economic trends, and even environmental conditions. Thus, people are always buying or selling shares and this affects the price of a stock. Markets crash when stocks become too overvalued or when there is widespread economic concern or recession/depression. For example, a stock can trade at say $22 and have a Price-to-Earnings ratio of 30/1 meaning you pay 30x what it makes per share on its earnings. If people see a weakening economy or sector, they may opt to sell it at say $20 a share and this in turn lowers the P/E ratio until the value is closer in line with the actual value of the company.
  3. The below tutorial will help you get to know how stock trading works
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