The Stock Market

Author Note: The stock market has always been something that I, as a market enthusiast have always been interested in. My father checks his stocks every morning incessantly, and I’ve always wanted to try to be part of it. However, with how complicated it is, I’ve always been deterred from properly getting involved/learning. But with the supposed stock market crash, I now have a chance to learn about how the stock market functions, which I will be sharing in this blog post. I’ll be writing about the stock market in a two part post, so I hope you’ll tune in for both! – B.C

About a week or two ago, the stock market dropped, more specifically the DOW dropped a total of 1033 points, which according to CNN, is “the second worst point drop in history, eclipsed only by Monday’s 1175 point nosedive”. Me, being the complete stock market novice, had no idea why this was such a big deal. I had heard from several news channels and articles that it wasn’t that big of a deal, as it was only a 4.2% drop, while in 2008, it was considered a financial crisis. But on the other hand, there were a lot of people who considered this drop indication of the ‘dark days’ or inflation. So I decided to look into it and write this blog post about it. After all, with how large a role the stock market plays in our society today, it is an empire in contemporary times.

So I’ll first explain how the stock market works and provide a little background before I get to my argument, mainly in North America. When people traditionally talk about the stock market today, they are usually talking about certain companies on one of two major stock exchanges: New York Stock Exchange, also known by the acronym NYSE, and NASDAQ. The main difference between these two is, as Amigobulls.com notes, “their trading principles’. To put it in layman’s terms, NYSE is an auction market, while NASDAQ is a dealers market that is based exclusively on electronic transactions.

 

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NASDAQ
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NYSE

(Sidenote- A little more detail for those interested: In the NYSE, buyers and sellers trade physically based off of a buy and sell price where a middleman essentially makes the transactions go smoothly. This buying and selling takes place physically so when you imagine people on the trading floor of New York city waving around papers or ringing bells trying to buy stocks, it’s the NYSE. In NYSE, people are typically trading and selling stocks between each other, where the highest bidding price is matched with the lowest selling price. NASDAQ, however, is a direct electronic transaction between buyer and company in which market participants are buying stocks from a dealer instead of from each other. {This is still a brief summary. If you would like to learn more, click here}) 

So back to my argument. The stock market is instrumental in allowing businesses to grow and become the modern empires that they are. How? Well, let me detail that right now. I’ve talked a lot about how the stock market works (NYSE and NASDAQ), but I haven’t gone into detail about what it gives companies. When you buy stocks, you are essentially buying a piece of the company. But why would companies give a part of themselves to potential buyers? Well the main reason is to raise money. When a company needs to raise money for a project, to release a new product, start a new branch, etc, it can issues shares through an IPO (initial public offering), where the shares are sold to buyers and the company get to keep the money they raised. But even with this transaction done, the shares of the company are still sold and bought through exchanges such as the NYSE, even though the original company doesn’t make any more money through it. But most importantly, the IPO and selling of shares is what essentially allows a company to grow. Being one of the ways for a company to raise money, selling shares provides a funding for future projects and expansion that allow some companies to become behemoths of the modern age.

In the next blog post, I’ll detail how certain companies like Apple and Amazon were able to grown into the behemoths they are through the stock market.

 

Until then,

B.C.

Works Cited
And the stock market is now in a correction — 10% off its record high just two weeks ago. “Dow Plunges 1,033 Points and Sinks into Correction.” CNNMoney, Cable News Network, money.cnn.com/2018/02/08/investing/dow-jones-stock-market/index.html.
Contributors, Amigobulls Anonymous. “Nasdaq Vs NYSE, Stock Market, Electronic Trading.” Amigobulls : Technology Stock Analysis, 3 Sept. 2015, amigobulls.com/articles/nasdaq-vs-nyse.
“How Does the Stock Market Work?” Time, Time, time.com/money/collection-post/2792005/how-does-the-stock-market-work/.
“How the Stock Market Works.” How Does the Stock Market Work? | Online Trading Academy, http://www.tradingacademy.com/resources/financial-education-center/how-the-stock-market-works.aspx.
Mitchell, Cory. “How the Stock Market Works.” Investopedia, 10 Aug. 2017, http://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp.
Staff, Investopedia. “The NYSE and Nasdaq: How They Work.” Investopedia, 28 Apr. 2017, http://www.investopedia.com/articles/basics/03/103103.asp.
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