How The Stock Exchange Works (For Dummies)

What is a Scholarship and how does it work? The stock market is nothing but a huge world wide web which tends to organize the market, and where dizzying amounts of money circulate every day. In total over sixty trillion (60,000,000,000,000,000) euros per year are traded. More than the value of all goods and services in the entire world economy as a whole. However it is not the apples or second hand toothbrushes that are traded in this market. But mostly securities are traded. Securities are rights to assets, which are mainly in the form of shares [share = part (literally translated)]. A "share" means a share in a company. But why are stocks traded? Well, first we need to know that the value of the stock has to do with the company to which it belongs. If you think the value of the company compared to a pizza. The larger the size of the pizza, the larger each portion of it. If, for example, Facebook, through a new business model, is able to increase profits en masse. The size of the pizza (company) will also increase, and as a result the value of its portions (shares) will also increase.

This is of course a good thing for shareholders (shareholders). A share that, let's say, was worth 38 euros, can now be worth 50 euros. If it is sold at the new price, a profit of 12 euros per share is realized! But what does Facebook gain from all this? The company can raise funds by selling its shares and investing the proceeds in expanding its business. For example, Facebook has earned sixteen billion dollars from the sale of shares on the stock exchange. However, stock trading is often a game of chance. No one can say which company will perform well and which will not. If a company has a good reputation, investors will support it. A company with a reputation or poor performance will have difficulty selling its shares. Unlike normal markets where goods can be touched and shipped home, on the stock exchange only virtual goods are available. They are presented in the form of stock prices and tables on monitors.

These prices can increase or decrease within seconds, therefore stock owners need to be quick so as not to miss any opportunity. Even a simple gossip can affect the rapid decline in demand for shares regardless of the true value of the company. Of course the opposite can also happen. If a large number of people buy weak stocks because they have noticed the potential behind that idea, the value of those shares will increase as a result. New companies in particular can benefit from this. Although their sales may decline, they may generate cash using other means (eg selling them to private individuals). The best possible scenario could be the idea turned into reality. While as the worst possible scenario a speculative bubble (balloon) with nothing but hot air in it could result. And experience teaches us that bubbles are destined to burst. The value of the thirty largest German companies is summed up in what is known as the Stock Index (DAX). DAX shows how well or poorly these big companies and the economy in general are performing at the present time.

Stock exchanges of other countries also have their own indices. And all these markets together create a global trading network. I apologize for the possible mistakes! Translation and adaptation: Kujtim Tetaj.

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