The Stock Market Explained

In our series on the basics of share investing we've had a look at what shares are and the different types of shares that are in existence. Now let's take a look at how shares are traded - the Stock Market.

If you watch the news or read the newspapers then you'll undoubtedly have seen stories about the Stock Market. The Stock Market is basically a place where shares are traded in listed companies - those shares can be owned by large institutional investors (such as pension companies), or by the likes of you and I (we're sometimes known as private investors.

There are actually a number of Stock Markets around the world - here in the UK we often focus on the London Stock Exchange (in "The City"), where shares in UK based companies are traded. Other leading stock exchanges include those in New York, Tokyo and Hong Kong. The leading stock exchange in continental Europe is to be found in Frankfurt.

Can anyone use the Stock Market?

The answer to that question is "yes", although most of us will never set foot in the Stock Market building. That's because the trading of shares is carried out by experts on our behalf - these experts are what is referred to as stockbrokers.

The basics of how the Stock Market works are actually rather simple. Bear with us here, as you'll need to be aware of some simple economics principles. The Stock Market works by bring together people who want to buy shares (those creating demand) with those who want to sell shares (those creating supply). As demand increases (ie more people want to buy shares) in a company then the price of shares is also likely to increase. This is because sellers (people who already hold shares in the company) know that they can sell their shares for more.

This basic principle works in the same way in reverse too.

Information on Shares:
The basics of investing in shares, Different Types of Shares, The Stock Market Explained, What is the FTSE 100?