The stock market is the market in which companies can issue securities in order to find financing. Investors who buy these securities then become shareholders of the company and obtain dividends calculated from the profits made by the company thanks to this financing and in proportion to the number of shares purchased.
Thus, the stock market allows the acquisition of securities of all listed companies on the different world financial markets.
What are stocks?
We call action a unit of financial participation in a company that can be sold to investors. To explain it in a general way, we can say that the total value of a company is divided into units of the same size. Each of these units is an action. For example, for a company valued at $ 100 million and issuing 10 million shares, each share will be worth $ 10.
Once issued, the price of the shares may evolve depending on the value of the company from which they come. Thus, investors who own these shares can sell them and earn a capital gain. Of course, it is also possible that the value of the company will decrease, in which case the price of the stock will go down as well.
The interest of the shares for the issuing companies
When a company goes public, the respective company issues the securities that investors will buy. These investors will own a part of this company. In exchange for these shares, the company generates funds that will allow it to make investments or that will be reinvested in the company.
When the funds raised by these shares are injected into projects to improve the company or finance innovations or certain developments, the share price has a great chance of rising as the company increases in value.
In some cases, the money generated by the sale of shares serves simply as a profit for the company, especially when it is new and needs funds to start. In that case, control of the company may be diluted among the different main shareholders.
Stocks and other stocks
The shares that you can trade online are called "shares on the stock market". This means that they are sold on the stock market, the market in which the sellers and buyers of these securities are located.
In these markets the share price or prices correspond to the price at which a security is bought and sold and therefore depends on supply and demand. These shares evolve continuously, and their price varies permanently depending on the number of buyers and sellers.
Here the share price no longer depends directly on the value of the company. However, the more a company is worth, the more interesting its action will be for buyers, and therefore, the more it can increase its price, and vice versa.
On the other hand, not all stocks are publicly traded.
Organization of the stock market:
The equity market itself is divided into several types of markets:
- The first market, which brings together the most important companies listed on the Stock Market and which is a cash market. However, it is possible to pay for your titles monthly by adhering to the SDR. To be listed, companies must have a turnover of more than 75 million euros.
- The second market groups medium-sized but always very interesting companies. To join, companies must make more than 10% of their capital available to the public and publish at least the last two years.
- This time the new market concerns young companies whose potential is evaluated as interesting in a more or less long term.
- The free market OTC (Over The Counter) or literally "free" is governed by the Euronext Paris market but is not regulated. To be represented there, the company must present the last two years and the statutes.
Operation of the stock market:
The stock market works like most other financial markets, namely that it allows you to pass purchase or sale orders for listed securities. Other conditions may be indicated in the orders, namely the price conditions and the validity limits.
Orders placed on the stock market are made in a very precise sense. Thus, it can be a priority character based on prices in increasing order or in time, in chronological order.
Two types of quotation are distinguished for stock shares, namely:
- The continuous quotation or CAC that concerns the most important values. In that case, the quote is reviewed live and in real time.
- The fixation of change that concerns the smallest values. In that case, the share price is made twice a day.
When a stock is listed on the Stock Exchange for the first time, it is difficult to make a classic price, since the results of this title are not yet known. However, this is what happens. Indeed, the first price of a stock exchange is different from the first price of an index in the sense that it corresponds to the prices that buyers are willing to pay and the prices that the seller wants. The detail of this calculation is explained below.
How the following quotes are carried out
The price of a stock evolves over time and its first price can change both up and down. Therefore, we can distinguish two types of quotation, which are the quotation continuously and the quotation by fixing single prices or "fixing".
Continuous trading or live trading is the type of quote you will see when investing online. It applies to the shares of listed companies. In this case, the share price evolves directly and throughout the day without interruption.
Within the "fixing" price, the share price only revalues two or three times a day.
Regardless of the type of quote, it is the relationship between supply and demand that influences the increase or decrease in prices.
How the price of a share evolves
We will base our explanation on stocks that are continuously traded, as they are the ones you will find on the trading platforms of online brokers. Here we know that the price of a share evolves without discontinuation throughout the day on the stock markets.
In the stock market, sellers propose a certain number of securities to sell at a minimum price. Buyers now make purchase price propositions for these share volumes. Of course, it is the buyers who propose the highest price for the largest number of securities who win the sale. The share price then becomes the price at which the share is sold.
In order to be able to anticipate the evolution of the price of a share, and therefore to obtain benefits by speculating with its price, it is necessary to anticipate the price that buyers will be willing to pay and the volume of potential demand.
Different types of contribution:
It is important to understand that all stocks are not traded in the same way. Indeed, there are two types of quotation, the direct quotation and the fixing quotation.
The live listing is the most common listing system since it concerns the vast majority of securities on the market and more specifically all the securities of large listed companies. The fixing listing system only applies to less liquid securities. Therefore, the companies whose shares are listed by fixing are the smallest companies that generate little volume of exchange.
While the live listing, as its name implies, takes place instantaneously and evolves throughout the speculation sessions, the fixing rate is made once or twice a day only.
Calculation carried out to quote a share:
The calculation necessary for the price of a share is both simple due to its principle and complex due to its application at the market level. We will now explain to you in the simplest way possible how the price of a share is evaluated on the stock markets.
To be brief, let's say that the price of a stock is determined by supply and demand. In the stock market, the sellers of securities propose a minimum price to sell their shares with the number of shares they are willing to sell. Buyers indicate the number of shares they are willing to buy and at what maximum price. The retained price will be the one that allows the largest number of securities to be sold taking into account the buyers and sellers.
Where and how to check the stock price online
Checking and following the share price live today is very simple given all the information that can be accessed through the new media. Thus, in addition to websites such as ours, where you can consult in real time and at all times the graphs of the stock price, there are applications for mobile phones that inform you of these prices live.
Of course, all online brokers that propose to trade stocks give them access to these same graphs and show the price of stocks live from their platform to facilitate the establishment of strategies and the monitoring of their positions.
How and why the share price evolves
Now we will be interested in the way in which the price of these shares fluctuates over time, since, as you already know, shares on the stock market are quoted continuously and their price evolves, therefore, permanently both up and down. low.
More specifically, the price of a share evolves based on the difference between the volume of purchases and the volume of sales of the security. These purchases and sales are also influenced by three major factors, which are the performance of the issuing company, macroeconomic factors and psychological factors.
The more security purchases there are, the more the share price will move upwards and, therefore, the more its value will increase. On the contrary, many sales will favor the decline in the share price.
However, some regulatory bodies such as Cysec may decide whether to intervene and block a rise or fall in the price of the asset that is too important.
Graphical indicators to understand the price of stocks
The graphs that allow you to consult the price of the shares live, and especially the graphs proposed by the brokers, are also very useful to analyze the market situation and anticipate the evolution of the price of these titles. This is what we call technical analysis.
For effective technical analysis, simply activate the indicators of your choice for these charts. This will provide you with essential information on the volatility of a security, its short- or long-term trend, and possible future trend changes.
Factors influencing the price of shares
The price of shares varies continuously based on various types of outside influences. Below we propose a detailed file to know everything about the factors that influence the price of shares and thus be able to anticipate the movements of the prices of your preferred assets.
Here we will address the economic and psychological causes of the rise or fall of the prices of a stock.
Company Factors Influencing Stock Prices
Several economic factors specific to the company can influence the price of a share on the stock market. First, all the data regarding the performance and news of the companies have a weight. This could be income and profit announcements, dividend announcements, the launch of a new product, the signing of a new contract, the termination of employees, an acquisition or merger with another company, a change of address or even errors of accounting or industrial scandals.
More generally, the events that affect a sector of activity influence the price of the shares that are part of it.
Global Economic Factors Influencing Stock Price
The major economic factors that significantly influence stock prices can be tracked on an online economic calendar available from most brokers. The data to be monitored are the following:
- National interest rates and monetary policy, which make companies more or less competitive in the international market;
- Economic prospects: when a period of growth is expected, stocks tend to anticipate this rise and increase in value, and the same happens when a crisis is approaching;
- Inflation: all inflation has the direct effect of slowing down consumption and, therefore, the production of companies, which consequently obtain fewer profits;
- Deflation: like inflation, deflation hurts companies, which sell their products cheaper and make fewer profits;
- Economic and political conflicts: any great change on an international scale can influence the economy and, therefore, the price of shares. An example can be a terrorist act;
- Economic policy: changes of government have a great influence on stock prices due to the economic changes they impose, and
- The value of the currency: any company that thinks about the international market is more or less competitive depending on the exchange rate of its currency.
Psychological Factors Influencing Stock Price
Finally, we must not forget that some purely psychological factors also influence the price of shares on the stock market. Indeed, according to what investors think of the market, a general trend can be glimpsed, even without any conclusive economic rationale.
Thus, we know that an economic recovery or a boom in a sector of activity tends to increase the level of investor confidence and cause rather significant upward trends. On the contrary, a period of recession or a high unemployment rate can push investors to flee the markets, leading to a significant drop in prices.
The stock market in the United States
In the United States we find two important financial centers for the stock market:
The NYSE or New-York Stock Exchange, which is currently the largest market in the world in terms of the volume of sale and the total sum of market capitalization. This stock market has existed since 1972 and in 2007 it became the NYSE Euronext market after the merger with Euronext.
The NASDAQ or National Association of Securities Dealers Automated Quotation System is the second stock market in the United States in terms of trading volumes. It has existed since 1971, the year in which it appeared with a base value of 100 points. This market is also a stock index weighted by the market capitalizations of the companies that make it up and is divided into three markets, which are the Global Select, the Global Market and the Capital Market.
The stock market in Europe
In Europe, the market on which the shares of all European countries are listed and bought and sold is the Euronext market. When it was created in 2000, Euronext only had three regulated equity markets and the Paris, Amsterdam and Brussels stock exchanges. However, today this market is much larger as other exchanges have been added, such as the Lisbon one, or also the English LIFFE market. Following its merger with the NYSE in 2007, the NYSE Euronext became the world's largest platform for stock exchanges. Then, in 2013, the Intercontinental Exchange, or ICI, bought NYSE Euronext and Euronext went out to become independent. Thus, the market has the following places:
- The Paris Stock Exchange market, with the CAC 40 as the base index. This index was created in 1987 with a base value of 1000 points and is made up of 40 values that a committee of experts reviews every quarter. For its part, the value of this index is calculated by making an average of the prices of each company that compose it, and this average is weighted according to the company's position in the French economy, with a limitation of 15% per part of each company in the index.
- Another important European market is the Amsterdam Stock Exchange, with the AEX benchmark stock index. It was created in 1983 and is made up of the 25 largest capitalizations in the country. The Euronext company is the one that manages this market and its composition changes several times a year, that is, partially every quarter and totally in March of each year.
- The Brussels stock market, whose index is BEL 20, and which was created in 1991 on a base value of 1000 points, is also one of the Euronext markets. Its index shows the 20 most liquid and important stocks in Belgium, and this composition is reviewed annually based on the closing price of the stocks at the end of December. The new composition takes effect in the first session of the month of March. To enter the BEL 20 index, a company must also have a market capitalization corresponding to at least 200,000 times the value of the index.
- Finally, the Lisbon Stock Exchange market is the last Euronext market. Its benchmark is the PSI 20, which is made up of 20 companies with the strongest market capitalization, which was created in 1992 with a base value of 3,000 points. Euronext also manages this financial market.
The Stock Market in Asia
Finally, Asia also has several equity markets, especially the following:
- The Shanghai Stock Exchange, whose index is the SSE, weighted according to the market capitalization of the companies that comprise it, that is, all the values of this market regardless of the category.
- The Hong Kong Stock Exchange, whose benchmark stock index is the Hang Seng Index, or HSI, created in 1964 with a base value of 100 points. This index integrates 4 categories of securities, which are commerce and industry, finance, public services and real estate. This index is generated by the Hang Seng Indexes Company Limited, a subsidiary of Hang Seng Bank, which is one of the most important banks listed on this market.
- Finally, the Tokyo Stock Exchange is the last stock market in Asia. Its reference stock index is the Nikkei 225 Stock Average, which was created in 1949 with an average value of 176.21 yen and a divisor of 225. As its name indicates, it integrates 225 stocks selected by the size of their market capitalization in the Japanese market. The Nihon Keizai Shimbun publishes and manages this index and its composition is subject to an annual review.