What are Stocks? What is Stock Exchange?
What are stocks
A stock is a share of the ownership of a company. As the owner of a stock, the stockholder has a claim on the company's assets and earnings. Suppose, you are starting a company, Pie Hut. So, you need $100,000 as a startup investment. But don't want to borrow from a bank thinking of the hazards and paying high interests. Instead, you invest $10,000 of your own money and finds nine other investors who are willing to invest $10,000 each. In return, you give each investor a certificate that represents 10% of your company. Each certificate represents 10% of the company's assets- the building, the baking materials, the pie pans, the rolling pins, the spoons and ofcourse the spices and 10% of any future earnings. After one year the company is doing well and the company's total value increases to $200,000. This means each share of the company is now worth $20,000. $200,000 divided by 10 shares, that's twice the original $10,000. The investors can sell their stock in the company to other investors for a 100% profit. This is how stocks work stocks are bought and sold daily on the major exchanges.
What is stock exchange
The Stock Exchange is nothing more than a global network, organizes a marketplace where every day huge sums of money are moved back and forth. In total over sixty trillion (60,000,000,000,000) Euros a year are traded. More than the value of all goods and services of the entire world economy.
Stock Market is a marketplace where companies sell stocks to the public. When companies need to raise money, they either go for banks or stock markets. If they have a good reputation, most times they prefer to make a portion of the company available to the public. Doing that, companies stay risk-free as they don't have to worry about the return the money with interests. When investors think the company will continue growing in future, they invest in it and get dividends as profit. When speculators or traders think the company will rise in value and demand on stock market they buy its shares and sell when it starts to fall in price.
Unlike a normal market in which goods can be touched and taken home, on the Stock Exchange only virtual goods are available. They appear in the form of share prices and tables on monitors. Such share price can rise or fall within seconds. Shareholders, therefore, have to act quickly in order not to miss an opportunity. Even a simple rumor can result in the demand for a share falling fast regardless of the real value of the company. Of course, the opposite is also possible. If a particularly large number of people buy weak shares. If they see a great potential for an idea. Their value will rise as a result. In particular young companies can benefit from this. Even though their sales might be falling, they can generate cash by placing their shares. In the best case scenario, this will result in their idea being turned into reality. In the worst case scenario, this will result in a speculative bubble with nothing more than hot air. And as the case with bubbles, at some point, they will burst. Producing some unhappy investors who will never turn to them.
The value of Germany's biggest thirty companies is summarized in what is known as the DAX share index. The DAX shows how well or poorly these major companies and thereby the economy as a whole are performing at the present time. Stock Exchange is in other countries also have their own indices. And all of these markets together create a globally networked marketplace, namely the Stock Exchange Market.
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