Stock

market
operation
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What Are stocks
A stock, also known as shares or
equity, represent ownership in a
company. This ownership comes
with certain rights, such as voting
on company matters and
potentially receiving a portion of
the company's profits through
dividends or capital appreciation.
Two types of
stock
Common Stock
Preferred Stock
Common stock
- voting rights and the
right to receive dividends.

Preferred
stock
-priority on dividends &
asset distribution in case
of liquidation.
-Do not have voting rights.
 WHY
COMPANIES
SELL THEIR
STOCKS?
 Stock
market
a platform where stocks are
bought and sold. It acts as a
marketplace for investors to
trade securities, enabling
companies to raise capital and
investors to potentially earn
returns.
Types of Stock
market
- Primary Market
- Secondary Market
 Primary Market

This is where new stocks are first issued.

Companies sell shares directly to investors
through an Initial Public Offering (IPO), raising
capital for their operations or expansion. This
is the first time these shares are offered to the
public.
 Secondary
market
This is where most daily trading
occurs. Investors buy and sell
already existing shares among
themselves. The company is not
directly involved in these
transactions.
 Why stock
markets are
important
1. Facilitating Capital Formation
2. Driving Effi cient Resource
Allocation
3. Providing Wealth Creation
4. Serving as Economic Barometers
 Facilitating
capital formation

Companies raise funds through

IPOs, enabling growth,
innovation, and economic
development.
Driving efficient
resource
allocation
The price discovery process
directs capital to promising
companies based on investor
sentiment, promoting
economic effi ciency.
Providing Wealth
creation
Investors can build wealth
through long-term stock
market participation,
benefiting from company
growth and dividend
payments.
 Serving as
economic
barometers
Market indices reflect broader
economic trends and investor
sentiment, informing decision-
making for policymakers,
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businesses and individuals.
Participants in
the stock
market
Various market participants play
important roles in the functioning of
stock markets. These include :

1. Investors (Individual and

Institutional)
2. Market Makers (MMs)
3. Brokers
4. Traders
5. Regulatory Bodies
Individual investors
These are individuals who
buy and sell stocks for
their personal investment
goals, ranging from
retirement savings to
short-term gains.
Institutional
investors
These are large organizations
that invest on behalf of others,
such as:

- Mutual Funds
- Pension Funds
- Hedge Funds
- Insurance Companies
 Market makers
- Function: Provide liquidity by
continuously quoting bid and offer
prices for securities, ensuring smooth
trading.

- Role: They are essential for ensuring

that there are always buyers and
sellers available in the market, even
for less popular stocks.
 Broker
- Function: Facilitate
transactions between buyers
and sellers, acting as
intermediaries.

- Role: They execute orders for

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clients, provide research and
investment advice, and manage
client accounts.
 Trader
- Day Traders: Focus on short-term price
fluctuations, aiming to profit from small
price changes within a single trading day.

- Swing Traders: Hold positions for a few

days to a few weeks, aiming to capitalize on
price swings within a larger trend.

- Scalpers: Make very quick trades,

profiting from tiny price differences, often
using high-frequency trading algorithms.
 Regulatory
bodies
Regulatory bodies maintain
order and fairness,
protecting investors from
fraud and manipulation.
Major stock exchanges
FUNCTION: Centralized platforms where buyers and
sellers meet to trade securities. They provide a
regulated and transparent environment for trading.

EXAMPLES:
- NYSE (New York Stock Exchange): The world's
largest stock exchange by market capitalization.
- NASDAQ: The second-largest stock exchange in the
world, known for its focus on technology companies.
- LONDON STOCK EXCHANGE: One of the oldest and
largest stock exchanges in Europe.
- TOKYO STOCK EXCHANGE: The largest stock
exchange in Asia.
Over-the-Counter (OTC)
Exchanges
FUNCTION: A less regulated market for
trading securities not listed on major
exchanges.
Structure: Trades occur through a network of
brokers and dealers.

- Examples: Smaller companies, companies

that don't meet the listing requirements of
major exchanges.

- Risk: Shares traded on OTC exchanges tend

to be riskier due to the lack of stringent
regulations.
Why Does the Stock Market Go Up
and Down?
The stock market goes up and down due to a complex
interplay of factors that influence investor sentiment and
economic conditions. These factors can be broadly
categorized as:

1. MACROECONOMIC FACTORS:
Interest rates, inflation, and GDP
growth significantly impact company
performance and investor confidence.
2. COMPANY-SPECIFIC NEWS: Earnings
reports, product launches, and
leadership changes directly affect
individual company valuations.

3. GLOBAL EVENTS: Political

instability, trade policies, and
geopolitical tensions create
uncertainty and volatility in the
market.
4. MARKET PSYCHOLOGY: Supply
and demand, as well as investor
sentiment (fear, greed, herd
mentality), play a significant role
in stock price movements.

5. MARKET BUBBLES AND

CRASHES: Speculation and
irrational exuberance can lead to
price bubbles, while panic selling
can trigger market crashes.
6. MARKET VOLATILITY: The
degree of variation in stock
prices over time, representing
both risk and opportunity for
investors.

7. STOCK MARKET INDEXES:

Provide a snapshot of overall
market performance, reflecting
broader economic trends and
investor sentiment.
How to invest in stock
1. Define Your Investment Goals and
Risk Tolerance

2. Choose your investment strategy

3. Choose a Broker

4. Diversify your portfolio

5. Monitor and Adjust your investment

Define Your Investment
Goals and Risk
Tolerance
- What are you saving for? Retirement, a
down payment on a house, a child's
education?

- How much risk are you comfortable with?

Are you willing to potentially lose money in
the short term for the potential of higher
returns over the long term?
 Choose Your
Investment
Strategy
- Passive Investing: Buy-and-hold strategies,
index funds, ETFs.

- Active Investing: Growth investing, value

investing, income investing, individual stock
selection.

- Consider your time horizon: How long do you

plan to invest? Long-term investing often
allows for more risk.
 Choose a Broker
- FULL-SERVICE BROKERS: higher fees but provide
personalized service and expert advice.

- DISCOUNT BROKERS: fewer services compared to

full-service brokers but charge lower fees.

- ONLINE BROKERS: offering a convenient and cost-

effective way to trade stocks.

- ROBOADVISORS: Algorithmic portfolio

management, low fees.

- DIRECT STOCK PURCHASE PLANS (DSPPs): have

lower fees and can be a cost-effective way to invest
in specific companies.
 Diversify your
portfolio
- Spread your investments across
different asset classes, industries, and
geographic regions.

- Use Mutual Funds, ETFs, Index Funds,

or Individual Stocks.
Monitor and Adjust
Your Investments
- Regularly review your portfolio to
ensure it aligns with your goals and risk
tolerance.

- Rebalance your portfolio as needed to

maintain your desired asset allocation.

- Stay informed about market conditions

and company news.
 Other kinds of
asset market
- BOND MARKETS
- REAL ESTATE MARKETS
- COMMODITIES MARKETS
- FOREIGN EXCHANGE MARKETS
- CRYTOCURRENCY MARKETS
How does inflation
affect the stock
market?
The effects of inflation on the stock market are
unpredictable—in some cases, it can lead to
higher share prices, due to more money
entering the market and increased job growth.
However, higher input prices can also restrict
corporate earnings, causing profits to fall.
How Much Does the
Stock Market Grow
Every Year?
The stock market, as
measured by the S&P 500, has
historically grown about 10.5%
per year, but this is an
average. Actual growth
fluctuates from year to year,
and individual stocks can
perform differently.
What Is the Bid-
Ask Spread in
Stocks?
The bid-ask spread is the difference
between the highest price a buyer is
willing to pay (bid) and the lowest
price a seller is willing to accept
(ask) for a stock. A small spread
indicates a liquid stock, while a
large spread suggests illiquidity and
diffi culty in trading.
 How Do People
Lose Money in the
Stock Market?
People lose money in the stock
market primarily through risky
investments, panic selling
during market crashes, and
margin trading, which amplifies
potential gains and losses.
 Why Might a Company
Choose not to List on a
Stock Exchange?
Companies often delay listing on
stock exchanges due to the high
costs involved, including listing fees
and compliance requirements, as
well as burdensome regulations that
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can restrict their operations. They
typically wait until they are more
established and financially stable.
Reference
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Thank You
for
Listening!
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