Many people have misconceptions about the Stock Market because there have been many myths and legends surrounding it. However, its operation is simpler than is usually believed. In this article we will know what the stock market is and how it works.
What is the stock exchange and what are its functions?
In the same way that if we need to buy shoes, we go to the shoe store, or if we need to buy bread, we go to the bakery, there are large “stores”, where financial assets are bought and sold. These “stores” are the so-called stock exchanges.
The stock exchange is a private organization that offers the necessary conditions for companies that need capital and individuals and / or companies that have capital, to carry out transactions for the purchase and sale of securities, such as company shares, public and private bonds, certificates or participation certificates, among other investment instruments.
Thus, the purpose of the stock exchanges is to provide the agents that intervene with a suitable place to carry out their transactions, where buyers and sellers meet, giving rise to the formation of prices of public offer securities, depending on the offer and demand.
Almost every country in the world has stock exchanges.
The main functions of the stock exchange are as follows:
It contributes to the development of the capital market, allowing intermediaries and clients to trade securities and financial instruments. Facilitates the flow of savings and investment in the stock market. Performs the primary placement of stock and bond market instruments. It provides a secondary market for the transaction of financial instruments. It promotes market regulation, favoring the free determination of prices and transparency in operations. It provides services, systems and infrastructure to the stock market.
Which agents are involved in the stock exchange?
To understand the operation of the stock market, it is important to understand what is the role of each of the agents involved in it:
Issuers: are the entities that issue the securities that are traded on the stock exchange. This is the case of the Central Bank, the General Treasury of the Republic, banks and financial institutions and corporations. Regulators: they are the institutions that supervise the good operation of the stock market and dictate rules for its control. Among them we find the Superintendency of Securities and Insurance (SVS), the Central Bank and the SBIF. Intermediaries: through which the investor can buy and / or sell financial instruments on the stock exchange. We can find two types of intermediaries:Stock Brokers and Securities Agents / Investors: they are those who invest their money in securities in order to obtain a return in return. They can be local or foreign and, in turn, they can be institutional (banks, insurance companies, investment funds, pension funds) or non-institutional (natural or legal persons).
What is the operation of the stock exchange?
The stock market works under a market dynamic, in which the interaction between suppliers and demanders influences the behavior of prices. So if a stock is in high demand, its price tends to rise; while if few people are interested in buying that stock, its price will tend to drop.
In the stock market, the price of assets will also be influenced by what information is available about the issuing company, news about its activities and results.
The negotiation of the securities between the seller and the buyer can only be carried out through an intermediary (broker or stockbroker), who is in charge of carrying out the sale transactions. It is important to note that intermediaries charge a commission for each operation you carry out on the exchange.
All offers on the stock exchange are public. From the moment that the private agent or the company can know the characteristics of the offer and the economic situation of the company that has put it on the stock market.
Is it a good idea to invest in the stock market?
Something you should always keep in mind is that easy money does not exist, the stories of people who became millionaires overnight are almost never real, unless you are one of the lucky ones to win the lottery jackpot. Based on this premise, is it a good idea to invest in the stock market?
Let’s see, you’re doing well, every month you have some money left over, so you want to invest in something. If what you are looking for is a long-range business, but with good profitability, the stock market is an option to contemplate, although, there is always the possibility of failing or losing money if we do not do things the way they should do.
According to our experience, the first thing to do if you want to invest in the stock market is to seek expert advice, experts who can put together a range of options that fit your requirements and what you hope to get with your investment, always keeping in mind that, If you are going to invest in this, it is because you do not need that money in the short term.
There are many ways to invest in the stock market, none are perfect and all have advantages and disadvantages, the ideal is to invest in all the options offered by the market, since they are all compatible with each other, this is the good thing about this type of investment, that you should not pigeonhole in one direction.
Answering the initial question in a more summarized way, investing in the stock market is an idea to consider, as long as you receive expert advice and educate yourself financially to understand that the market can present ups and downs, in addition, never forgetting that it is something that it works long term.