Before going onto understanding the functioning of the stock market, it is important to know the different players in the market since; it is the components of any device that determine how it functions. There are as many as five different levels of investors and contributors involved.
- The individual investors and institutional investors
- The brokers and the brokerage firms
- The floor brokers
- The companies contributing or giving the stocks
- The government
Each level of investor has some or the other profit or gain riding on the stock market. Just like any other market, every participant should go home richer and happier ideally speaking. Therefore, how does the stock market work? Simple, it works by keeping every member happy.
The companies that issue these stocks get money from the public investors that is interest free and in a broader sense not required to be repaid. Therefore, companies can issue stocks to garner money for newer projects and expansions without having to resort to loans. However, this is only possible if the investors in the stock market are willing to buy their shares. This is where individual investors and institutional investors come in. If a person thinks that the company will improve and grow, then owning a piece in the company could reap huge dividends. This is why, the share prices are a close indicator of a company’s success.
To facilitate these two key players in the market, there are the brokerage firms who help institutions and individuals buy stocks in the market through their floor brokers who manuallyget these share papers for the investors. In return, they take a small commission for their services.
How does the stock market work for the government? Well, the stock market is not only an indication of the performance of individual companies but also of the whole economy. Therefore, the higher the stocks rise, the better it is for the government and the country.
