What is the stock market and how does it work?
Investments 101
September 11, 2024
You’ve probably heard a lot about the stock market and how it’s an excellent investment option. But what do you really know about the stock market? How does it work? How do you make money in the stock market? Keep reading to find out!
That’s why today we’ll define the term, explain how it works, what is a broker?, what it’s for, and what the risks of investing in the stock market are.
Stock markets are organizations where company securities are bought and sold. The most popular securities are stocks, but there are also bonds, ETFs, options, and more.
An insight from Economipedia helps us understand that there isn’t just one stock market; there can be many, such as the Japan Exchange Group, Shanghai Stock Exchange, Hong Kong Exchanges, or Euronext around the world. But one of the most well-known stock markets is the NYSE (New York Stock Exchange) and NASDAQ (National Association of Securities Dealers Automated Quotation), the main markets in the U.S., among others.
We can define the stock market as a marketplace that provides either a physical or virtual environment, with the necessary regulations to facilitate the buying and selling of securities, stocks, bond ETFs, through authorized intermediaries.
It’s true that one characteristic of the stock market is that it offers public access to a wide variety of stocks and securities from around the world, but despite this public nature, the stock market is controlled by private organizations that regulate and provide a secure space for any type of transaction.
Security in transactions for both its members (brokers, intermediaries, or agents) and its clients (buyers and sellers).
With the concept clear, let’s move on to:
The stock market serves to facilitate the buying and selling of any type of security, stock, ETF, etc., in an accessible and secure way. By doing so, it enables the channeling of savings, thus promoting the growth and economic development of a country.
The functionality of the stock market can also be understood as the advantages that stock markets offer, let’s look at some of them:
Now that we understand the positive impact it has both for its members and the region, let’s move on to understanding the next question:
Just as knowing the basics of computing has become essential for working today, understanding how the stock market works is vital for those who want to start investing.
The stock market provides a space where those seeking financing and those looking to invest come together.
We’re talking about two main players: the buyer and the seller, but there is a third player: the intermediary; which means that you, as an individual, cannot directly enter the stock market to buy or sell. This is because those who run the stock market must ensure and back every transaction, so:
To carry out transactions in the stock market, you need an authorized financial intermediary, known as brokers, stockbrokers, or you can also use a broker; but what are brokers? They are representatives of the company or individuals who hire their services, and in return, they may or may not charge a commission for their services.
The hours vary depending on the country:
That’s how the stock market works! If you want to learn more about how to invest in an online broker without commissions, check out this link!
Currently, operating in the stock market is highly trustworthy, as the private organizations that control the various stock markets are backed by a strict legal system, and in many cases, by more than one organization. For example, in the United States, there is the federal agency SEC, U.S. (Securities and Exchange Commission), and FINRA (Financial Industry Regulatory Authority).
So you can be confident that conducting transactions in the stock market is safe and reliable, as long as you have a licensed broker intermediary who is regulated by these institutions. In that sense, the following question arises:
What broker is a good option in Latin America?
It’s no news that the broker market in Latin America isn’t very popular, due to various reasons: commission costs that can erode profitability, access restrictions, and some requirements of brokers themselves.
Hapi was created with the aim of democratizing access to stock market investments and bringing prosperity to the region. It’s an excellent regulated broker option in Latin America, operating under its own license and allowing you to trade on the U.S. stock market from Latin America without paying commissions.
You can download the app and create an account in minutes! It’s available on both iOS and Android.
And if you want to know how to make money in the stock market, we suggest this post: How to Invest in the Stock Market with Little Money?
Just as there are advantages, it’s important to know that it also involves taking on certain risks when investing in the stock market.
The truth about the stock market is that it has a volatile nature when it comes to prices or quotes; it’s true that sometimes the cost of a stock can change drastically overnight, but the market trend always tends to recover, which is why many experts invest for the long term.
This characteristic of price variability, called volatility, can generate positive returns but can also suddenly decrease your profitability. To deal with this phenomenon, we recommend the following podcast:
Buying and Selling Stocks on the Stock Market for All Latin Americans
However, like everything in life, making a decision will always have consequences, and investing in the stock market is an activity that carries risks. But if used well and with the right tools, it can bring many benefits. Are you interested in starting to invest in the stock market? Check out the stocks that rose this week.
In our next blog post, we’ll discuss a topic that has been highly requested: How to Calculate and Organize Your Monthly Budget?
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All investments involve risk, including the loss of capital. Hapi offers self directed investment accounts for those investors who feel comfortable managing their own investments. For a full list of our disclosures, please visit our disclosures page.