Published on: October 14, 2022

What is a stock market? A beginner’s guide

Author: Laura Brocca

What is a stock market? A beginner’s guide
Table of Content
What is the stock market?
A brief history of the stock market
How the stock market works
The Russian stock market
How to track the stock market news
Stock market today
Stock market crash
Last thoughts

Shares of publicly traded corporations are traded on various exchanges, which are collectively known as the stocks market. There are regulated formal exchanges and unregulated over-the-counter (OTC) marketplaces where such financial dealings take place.

The terms “stock market” and “stock exchange” are often used interchangeably but mean the same thing. Shares can be purchased or sold on any of the stock exchanges that make up the stock market as a whole. Now let’s dive a little deeper.

For a start, the New York Stock Exchange (NYSE) and the Nasdaq are the two largest stock markets in the United States.

What is the stock market?

A stock market is a meeting place for investors and traders buying and selling those financial assets. The stock market functions as a gauge of the economy and is a place where investors can learn what companies’ stocks are worth. As a result of the intense competition present in an open market, buyers and sellers may rest easy knowing that they will receive a reasonable price, a large number of liquid assets, and full disclosure. Although, like with any other type of investment, profit is never guaranteed, and the market can experience a downturn at any point in time. 

A brief history of the stock market

In 1773, investors and dealers gathered at a London coffeehouse to launch what would become the world’s first stock exchange, the London Stock Exchange.

In 1790, Philadelphia became home to the first American stock exchange.

Because it was signed beneath a buttonwood tree, the Buttonwood Agreement is considered to be the founding document of New York’s Wall Street, which took shape in 1792. It was the first organization of its sort in the United States and was signed by 24 traders. In 1817, the dealers rebranded themselves as the New York Stock and Exchange Board.

It’s important to remember that the stock market is a highly monitored and regulated institution. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are two of the primary oversight bodies in the United States (FINRA).

How the stock market works

Stock markets provide a safe, regulated environment for trading shares and other financial products with zero to low operational risk. Primary and secondary stock markets operate under regulator-defined regulations.

As a primary market, the stock market permits corporations to sell shares to the public through an IPO (Initial Public Offering). This helps companies attract investment. A firm divides itself into shares and sells some to the public. Then the stock market provides a marketplace for selling a company’s shares. A listed corporation may offer fresh shares through rights issues or follow-on offerings. They may repurchase or delist shares.

Investors buy a company’s shares in hopes of a price increase, dividends, or both. The stock exchange facilitates capital-raising and is paid for by the company and its financial partners. Moreover, investors can buy and sell their own securities on the secondary market via stock exchanges.

The stock market maintains market-level and sector-specific indices, including the S&P 500 index and the Nasdaq 100 index, to track market behavior.

After an IPO, the stock exchange trades outstanding shares. As for the secondary market, every secondary market trade on the stock exchange’s platform earns a fee.

The Russian stock market

Russia became a leading developing market and member of the BRIC nations after growing 700% between 2001 and 2006. Large crude oil deposits and free-market efforts attracted numerous investors. Military intervention in Ukraine in 2014 and a drop in commodity prices have harmed Russia’s prospects. Although, investors should still watch out for its $1.6 trillion economy. 

The Moscow Exchange merged the Russian Trading System (founded in 1995) with the MICEX Group (Russia’s oldest exchange) in 2011. The exchange offers numerous assets, including cash equities and commodity futures. 

Buying U.S.-traded mutual funds, ETFs, or ADRs is the easiest way to invest in the Russian stock market (ADRs). Since they’re traded on U.S. exchanges, investors can avoid tax problems, execution risk, and odd trading hours.

Moscow Exchange market times vary. The securities, derivatives, foreign currency, and commodities markets are open from 9:30 a.m. to 11:50 p.m. Moscow time (GMT+3). However, the standardized OTC market is open from 10:00 a.m. to 5:00 p.m.

Some of the most popular U.S. Russian funds and ADRs include:

VoyaRussiaFund (Mutual Fund: LETRX)

VanEck Russia ETF (NYSE: RSX)

(ADR) Gazprom (Pink Sheets: OGZPY)

How to track the stock market news

There are thousands of news websites to catch you up to speed with the stock market. Many offer social media and newsletters, and you can choose domestic or international English-language news sites. Obviously, can check out these sites on your laptop or your smartphone. Also, CNN, Fox News, BBC, NYT, and G&M all give 24/7 news coverage.

Most websites allow you to prioritize categories. If you sign up for breaking news on most news websites, you’ll be sure to get the latest updates. The news outlets will text you only the most important headlines. Other methods that can help you stay up to date include push notifications on your trading app. You could also try RSS readers, Google Alerts, news aggregators, news tickers, and even financial podcasts on your way to work.

Stock market today

To the best of our knowledge, as of the month of August 2022, the total market capitalization of stocks listed on the New York Stock Exchange was a little over $24.1 trillion. The next largest exchanges are NASDAQ, the Shanghai Stock Exchange, and Euronext.

Stock market crash

A stock market crash is a sudden drop in stock prices. A stock market fall can be caused by events like natural disasters, economic crises, or a speculative bubble, to name a few. The so-called “worry selling” caused by public panic about a stock market disaster can also reduce prices.

Stock market crashes are commonly defined as a double-digit decrease in an index over a few days. Naturally, if they happen, they affect the overall economy. When the market crashes, investors lose money by selling shares after a price decrease and buying too much on margin.

1929’s Great Depression, 1987’s Black Monday, 2001’s dot-com bubble burst, 2008’s financial crisis, and 2020’s COVID-19 pandemic are some of the more famous stock market crashes.

Last thoughts

We hope you’re a bit clearer about the ins and outs of the stock market. Here are two more of our write-ups that can be of help: how to invest in stocks if you’re a beginner and 10 good reasons to invest in stocks. Happy trading! 

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