How the Market works?
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Before investing we should know how the market works. The company raises funds for itself by selling some of its shares through IPO. These shares are bought by banks, insurance companies, common investors, other companies. All these shares are bought and sold through the Stock Exchange. A stock exchange is a market place where all buying and selling transactions are reconciled using electronic and software technology. In this, along with shares, bonds and commodities are also bought and sold. All countries have their own stock exchanges where shares are bought and sold.
Although Stock Exchanges do all the trading, the common investor cannot trade directly on the Stock Exchange. Because for that it is necessary to be a Stock Exchange member. Stock Exchange members are called stock brokers. Common investors can buy and sell shares through stock brokers. In short, brokers play the role of an intermediary between the investors and the Stock Exchange. In return, brokers charge a brokerage fee. A common investor needs to open an account with a broker for trading.
Now let's see how the transactions of buying and selling shares work. Let's take an example for that. For example, let's say a vendor in a vegetable market is selling potatoes at $ 30 per kg. But when the customer's expectation is $ 25 per kg, the customer starts negotiating with the seller. In such a case, if potatoes are not sold at $ 30 per kg, then the customer can get potatoes at $ 25 per kg. But if there are plenty of customers and they are willing to buy at $ 30 per kg or more, the seller can increase the price. That is, if demand decreases, prices decrease and if demand increases, prices increase.
This is the same with share market. Suppose the market price of a company's shares is $100. But you want to buy those shares at $95. If no one buys these shares at $100 then you can get these shares at $95. But if there are more buyers and if they are ready to buy shares at $100 or more, then you will not get those shares at less than $100.
An ordinary investor has to place an order with a broker to buy and sell shares. For that, it is necessary to have an account with a broker. You can easily place this order through the broker's app from your computer or mobile.
Now let's see the types of orders.
Types of orders:-
- Limit order
- Market Order
- Stop Loss Order
- Duration order
1) Limit Order:- This order is used if the shareholder wants to buy the share at a price lower than the current market price or if the shareholder wants to sell the share at a price higher than the current market price.
Suppose a share is priced at $100 but you want to buy it at $95, you can place an order for $95. If the share price falls to $95 then your order will be automatically placed and you will get that share but if the share price does not fall to $95 then you will not get that share. This order is also used for selling.
2) Market Order :- If the share is to be bought immediately at the current market price, then this order is used.
3) Stop Loss Order:-Suppose you buy a share worth $100, if the price of the share goes up, you will profit. But if the price goes down, you can lose. You can use a stop loss order to reduce this risk.
Suppose you can tolerate a loss of $5, then you can place a stamp loss order at a price of $95. So that if the price comes down to $95 , the excess loss by selling the share stops. In short, these orders are used to reduce risk.
4) Duration Order:- In this you can set the duration of the order to be placed, if the order is not placed within that period, the order is automatically cancelled.
Why do companies sell stock?
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