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28 Mar 2022

Introduction to Stock Markets

Priyanka Adhikary

When it comes to investments, stock markets play a significant role. You can invest in the stocks of blue-chip companies, IT giants, local companies, and more that are listed on stock exchanges such as SGX, NYSE, NASDAQ etc. Stock’s performance depends on the market conditions and trends. For instance, when the COVID-19 pandemic started, the market went through fluctuations and entered a bear* run, and within a few months it entered a bull** run again. Such conditions are hard to predict but can play a huge role in determining the returns earned from investing in stocks.

If you are still new to investments, investing in a stock market may seem intimidating and risky. However, if you want to understand what a stock market is and how does the stock market work, you may want to check the points discussed in the article.

What Is a Stock Market?

The stock market is a designated physical or digital market where hundreds and thousands of investors connect to buy and sell stocks of different companies and trade various kinds of securities. The financial activities that happen in a stock market are regulated by different regulators as per the location of the trading venue.

What Is a Stock and How Does the Stock Market Work?

A stock, also known as equity, is a security that represents the ownership of a company. Companies issue stocks by listing them onto stock exchanges to expand and grow their business. Investors buy and sell the stocks to gain potential high returns. Investors who own the shares of a company are known as shareholders of that company. When the company profits, the shareholders also receive a portion of the profits.

A stock market is a place where investors or buyers can buy or sell shares of companies. Stock markets work through stock exchanges such as SGX, NASDAQ, NYSE, and more. Companies follow a process called IPO or Initial Public Offering to list their stocks in the stock exchanges. Once listed, the investors can then buy or sell these stocks.

What Is a Stock Market Index?

A stock index or a stock market index is a statistical measurement that shows the overall market conditions of different sectors. An index gathers data from listed companies that have similar types of stocks. In other words, it displays the performance of a group of similar stocks. This data can help investors approximate how the stocks of a particular sector are faring.

Different indexes will show the market condition of various sectors and industries. For instance, if you want to know how the stocks of industry giants such as Apple, Goldman Sachs, etc., are faring, you might want to have a look at the S&P 500 Index which shows the stocks of 500 leading companies. A stock market index can help investors pick stocks as different indexes can represent the overall conditions of different sectors and markets.

How Is the Price of Stocks Set?

The supply and demand of stocks determine their prices and are tracked by the stock exchanges. So, if more investors want to buy the stocks of a particular company rather than sell them, it may indicate that there is a demand for those stocks. Therefore, the prices of those stocks can increase. If more people want to sell the stocks of a company, it may indicate that the demand for the stocks is less. As a result, the price of those stocks can fall.

One of the factors that can determine the price of the stocks of a particular company is its earnings. Publicly listed companies must report their earnings to the stock exchanges. Based on these reports, the future value of a company is determined. If a company’s profits surpass the expected results of the analysts, the price of its stocks can increase. Similarly, if a company suffers drastic losses, its stock prices can drop.

What Is Stock Market Volatility?

Volatility in a stock market can be explained as the rate at which a stock fluctuates with the increase or decrease in its value. If the stock price volatility is higher, it indicates higher risks. Similarly, if the price of the stock has lower volatility, the value may not change drastically.

Stock Market vs Stock Exchange

Stock markets and stock exchanges are not the same. A stock market consists of markets and exchanges where equity shares of publicly held companies and related securities are traded.

Stock exchanges are a part of stock markets that facilitate the trading of the stocks of the listed companies. Investors can buy and sell stocks on the stock exchange by themselves or through brokers and brokerage firms.

*Bear Market: A declining market that can indicate recession and the slowing down of an economy.

**Bull Market: A rising market that can indicate growing employment levels and growth of the economy.

Frequently Asked Questions

What controls the stock market?

The volatility of a stock market is determined by a variety of factors but majorly by the demand and supply of the stocks being traded in the market. Each stock market is also regulated by different regulators. For instance, the SGX or Singapore Exchange is regulated by the MAS.

Is a stock exchange and a stock market the same thing?

No, a stock exchange and a stock market are not the same thing. A stock market comprises stocks, mutual funds, ETFs, etc. A stock exchange is a subset of a stock market that facilitates the trading of stocks between investors.

What time does the stock market open and close?

The trading hours of stock markets can differ as per the geographical location. We have listed the opening and closing hours of some of the popular stock exchanges below:

NYSE (New York Stock Exchange)

  • NYSE opening Hours: 9:30 am Eastern Time
  • NYSE closing Hours: 4:00 pm Eastern Time

NASDAQ (National Association of Securities Dealers Automated Quotations)

  • NASDAQ Opening Hours: 9:30 am Eastern Time
  • NASDAQ Closing Hours: 4:00 pm Eastern Time
  • Pre-market Hours: 4 am to 9:30 am Eastern Time
  • Post-market Hours: 4 pm to 8 pm Eastern Time

Singapore Stock Exchange (SGX)

  • Singapore Stock Exchange Opening Hours: 9:00 am Singapore Standard Time
  • Singapore Stock Exchange Closing Hours: 5:06 pm Singapore Standard Time
  • Pre-opening Hours: 8:30 am to 8:58 am Singapore Standard Time

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