What is the stock market?

Views 40KAug 9, 2023

Core points

The ● stock market consists of two parts: the issued market (primary market) and the traded market (secondary market).

● stock market provides a place for enterprises to raise funds and a channel for investors to invest in enterprises. It can also reflect the economic situation and promote economic development.

The ● stock market is changing all the time, and there is speculation, and extreme situations may occur.

Detailed explanation of concept

The stock market is a market formed by stock-related activities, which includes two parts: stock issuance and stock trading.

The market for stock issuance is also called the primary market, in which there are issuers, underwriters and investors, but there is usually no fixed place, so it is actually an abstract concept.

The market of stock trading is also called the secondary market. In the secondary market, the transaction between the buyer and the seller needs a middleman, of which the most authoritative middleman is the exchange.

At present, there are exchanges in many countries, such as New York Stock Exchange, NASDAQ Stock Exchange, London Stock Exchange, Tokyo Stock Exchange, Hong Kong Stock Exchange and so on. In fact, the products that can be traded on these exchanges are not only stocks, but also futures, funds and other products.

Of course, the matchmaker can also be an institution other than an exchange. For example, the "dark market" of Hong Kong stocks is also a secondary market, which is a trading platform set up by securities firms themselves.

The words "on-the-market" and "over-the-counter" we often hear refer to the secondary market, but the former refers to inside the exchange and the latter refers to outside the exchange.

The role of the stock market

For enterprises, the stock market provides an efficient place to raise funds and promotes the development of enterprises. The price changes in the stock market and the behavior and speech of investors can also reflect the operating conditions of enterprises and help enterprises to improve their business strategies.

For investors, the stock market provides a channel to invest in enterprises, so that they can use idle funds to participate in social reproduction, so as to share the dividends of enterprise growth.

For the overall economy, the quality of the stock market reflects the supply and demand of market funds and the changes of the overall economic situation to a certain extent, so it is often called "economic barometer". In addition, the stock market indirectly promotes the development of the overall economy by promoting the development of enterprises.

The risk of the stock market

The only constant in the stock market is that it changes all the time. Because a variety of factors, including economic situation, macro policy, industry dynamics, corporate performance, investment behavior and so on, will affect the stock market. So be prepared to deal with changes before entering the stock market.

There are some speculative behaviors in the stock market, so it is important to identify and avoid them. For example, some large investors may make a profit by taking advantage of their own capital to influence the rise and fall of stock prices through a large number of transactions or other behaviors.

Extreme situations can also occur in the stock market, and when this happens, try to avoid losses. For example, if it falls too much, the exchange may suspend trading in order to control the risk, a measure called a circuit breaker. In March 2020, under the influence of the epidemic situation of COVID-19, the sharp fall in oil prices and the great uncertainty of the US economy, the US stock market continued to decline, triggering four circuit breakers for eight consecutive trading days.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.