Financial markets play a strong role in the economy as they effectively contribute to providing cash and cash liquidity for commercial and economic activities, transferring savings, directing them to the required sectors, and using them in various investment channels.
Financial markets perform this role through financial transactions, starting with issuing securities, making them available to investors, and making them available for trading. In this article, we will learn from the beginning, about one of the oldest and most famous financial markets, the stock market.
The concept of a money market or financial markets
Before we start talking about the stock exchange, bear in mind that the stock market is one of the oldest and most famous financial markets, and “What are financial markets?”.
The buyer is driven by the desire to get and demand, the seller is willing to compromise and make an offer in return, and in the financial markets, security is what the transaction is all about.
The role of the financial market, in this case, is to facilitate the process of buying or selling securities following specific laws and regulations, which may be shares or other types of contracts and other types approved by the financial market regulators in each country. Financial derivatives.
What are stocks?
Since the stock represents a part, share, or part of the capital of a publicly traded company and the owner is considered a shareholder in this company, it is called a share from the concept of share ownership. For example, shares can be traded - usually using trading methods prescribed by money market regulations.
This brings us to another concept which is a listed company.
At first, the company is private, owned by an individual or a group of people in the private sector, then for various reasons, the most important of which is to collect funds to invest in the development and development of the company, to raise funds to increase its capital. Capital or new acquisitions of other companies or their divisions, or repayment of debts on their basis.
The company offers its shares for the first time on the stock exchange, that is, it offers some of its shares to shareholders to inject these funds to obtain a share - a share - of the ownership of the company, and thus the company becomes a public limited company owned by the private sector.
For this reason, the company's shares are tradable on the stock exchange, and therefore the company's financial position is periodically evaluated by monitoring the share price and the size of investors' appetite in the capital markets within the framework of supervision. Market Authority regulations.
The increase in the value of the company's shares is an indication of the strong demand for the shares due to the company's credibility, financial stability, profitability, and good performance.
On the other hand, a drop in the stock price is a reflection of negative performance, declining profits, increased indebtedness, and even negative news and rumors.
How does the stock market work?
As mentioned earlier, the working mechanism of the stock exchange is based on providing and regulating the stock exchange - stocks - for buyers and sellers, negotiating prices - supply and demand - and making agreements between them as the exchange operates through a network of exchanges.
After companies list the shares symbolized by the initial public offering or public offering on the stock exchange. The company's shares are initially priced and opened for trading if the investors agree to buy them, and it is usually possible for the investors to exchange these shares among themselves after some time after owning the shares.
Where the stock exchange monitors and regulates the supply and demand for each share traded in the stock exchange, as this supply and demand help determine the price of each share and the price levels at which investors or shareholders are willing and able to complete the purchase or sale.
To create the demand, buyers make an offer that expresses the maximum amount they can pay for the stock, while sellers create the offer by offering the prices they want in exchange for giving up the stock.
The transaction is not completed until the buying and selling prices converge at a point agreed upon by both parties and the transaction is completed.
exchange departments
Having a market or stock exchange is very important for an investor to follow prices and execute trades, and unlike all the activities that take place in a stock market, it is essential to know how the market is divided.
The main market
It is the place or institution where companies offer new shares and bonds to a first-time investor, such as an initial public offering (IPO), and sell them at that moment. Direct from the parent company to the first investors who want to have priority in acquiring the shares of that company
secondary market
What we know as traders is the stock market, where previously issued and offered shares in the primary market are traded between the investors themselves and others without dealing with the company itself, like in different stock markets around the world. For example, the New York Stock Exchange, the London Stock Exchange, or the Saudi Tadawul Stock Exchange
OTC market
It is sometimes called an over-the-counter market and is a type of decentralized market, meaning that its transactions occur outside the boundaries of the local exchange where the shares to be sold or bought are listed. It is a type that facilitates the trading of securities in the electronic environment through an electronic broker by investors through various trading platforms. Financing helps promote stocks and financial instruments that may not be available to investors.
How are shares bought and sold?
It's easy, just follow these steps:
First Step: Find a broker and open an account
Before you can start buying shares, you will first need to open an account with a brokerage company, which is not difficult especially with so many brokers and online trading platforms available now, and once you add money to the account you can start analyzing and tracking. Even the stocks you want to invest
The second step: Choosing the right stocks to invest in
Once the trading account is opened and funded, it is time to take the hardest step, which is to dive into the stock-picking business. To simplify this task, simply follow this advice: “Don't be confused by news, data, and market fluctuations during your journey to search for the best stocks, just target the companies you are looking for. Own spare parts and consider it a good place to invest.
Step Three: Execution
It's time to trade in your account, but before you activate a share buy order, you should know that buying shares are not as simple as pressing the buy button in the trading platform app. In general, you have to choose the type of order, or in other words, choose among the most common types of orders:
Market order: This type of order directs the broker to immediately buy the shares at the lowest available price. The current stock price that you see when you enter a market order is not necessarily the price at which the market order will be executed. Prices change in milliseconds, and you tell the broker to take the lowest price available.
Limit order: or set at a specific price: In this case, you specify the price you want to buy, and the purchase will only take place if the stock drops at that price or during a certain period. If the stock never reaches the declared price before that order expires, the deal is canceled.
Step Four: Sell Your Stock
As an investor, the ideal time to sell your shares is when you need the cash. In the long run, you should have a strategy that focuses on a financial goal and a timeline for achieving it. This means that your plan should include the financial goal you want to achieve and a sale history that will meet your goals.
It should be noted that selling stocks to long-term investors has nothing to do with what prices suddenly do. It is about a day trader or a fast scalper who plans to take profits as soon as possible right from the start and the start, if not, then you don't have to worry about keeping an eye on the daily price movements.
If you fall into the famous puzzle of every stock investor, "Should you hold a losing stock?" Just reconsider why you purchased it in the first place and see if anything has changed. If not, a lower price may be a good time to buy more, always remember to plan your trade and trade your plan.