What is Stock Market and how it works ?

In stock market, a company gets only the amount collected through IPO launch. The money from buying or selling of the stock of the company on the exchanges is not received by the company. Investors gain or lose money in market depending on the perceived value of company.

As the business expands and capital requirements become more substantial, the entrepreneur may turn to angel investors and venture capital firms.

Predicting the rise or fall of a particular stock or share is very difficult. The key to gain profit in the market is to create a diversified portfolio of stocks from different sectors and hold them for the long-term. It is generally seen that over a long period of time stocks as a whole tend
to rise.

When the company gets established, it may require access to much larger amounts of capital, which it can do by selling shares to the public through an initial public offering (IPO).

In contrast to every stock photo of Wall Street you've ever seen, most stock trading today is done electronically by supercomputers in New Jersey spitting out algorithms. So while men in oversized blue jackets on the floor of the New York Stock Exchange might dominate your Google Images searches, computers dominate trading activity.

Share prices are determined by the bid and the ask. The bid is the highest amount a buyer is willing to pay for an asset. Conversely, the ask is the lowest price a seller is willing to accept to sell. The difference between the two prices is the bid-ask spread, which affects the price at which a stock buy or sale occurs.

This changes the status of the company from a private firm whose shares are held by a few shareholders to a publicly traded company whose shares will be held by numerous members of the general public.

The IPO also offers early investors in the company an opportunity to cash out part of their stake, often reaping very handsome rewards in the process.

Once the company's shares are listed on a stock exchange and trading in it commences, the price of these shares will fluctuate as investors and traders assess and reassess their intrinsic value

There are many different ratios and metrics that can be used to value stocks, of which the single-most popular measure is probably the Price/Earnings (or PE) ratio. Stock analysis also tends to fall into one of two camps – fundamental analysis, or technical analysis.

The overall market is made up of millions of investors and traders, who may have differing ideas about the value of a specific stock and thus the price at which they are willing to buy or sell it

The thousands of transactions that occur as these investors and traders convert their intentions to actions by buying and/or selling a stock cause minute-by-minute gyrations in it over the course of a trading day.

A stock exchange provides a platform where such trading can be easily conducted by matching buyers and sellers of stocks.

The stock market also offers a fascinating example of the laws of supply and demand at work in real time. For every stock transaction, there must be a buyer and a seller.

Because of the immutable laws of supply and demand, if there are more buyers for a specific stock than there are sellers of it, the stock price will trend up. Conversely, if there are more sellers of the stock than buyers, the price will trend down.

The bid-ask or bid-offer spread – the difference between the bid price for a stock and its ask or offer price – represents the difference between the highest price that a buyer is willing to pay or bid for a stock and the lowest price at which a seller is offering the stock

The bid-ask or bid-offer spread – the difference between the bid price for a stock and its ask or offer price – represents the difference between the highest price that a buyer is willing to pay or bid for a stock and the lowest price at which a seller is offering the stock

If sellers outnumber buyers, they may be willing accept lower offers for the stock, while buyers will also lower their bids, effectively forcing the price down.

Numerous studies have shown that, over long periods of time, stocks generate investment returns that are superior to those from every other asset class. Stock returns arise from capital gains and dividends.

A capital gain occurs when you sell a stock at a higher price than the price at which you purchased it. A dividend is the share of profit that a company distributes to its shareholders.

Dividends are an important component of stock returns – since 1926, dividends have contributed nearly one-third of total equity return, while capital gains have contributed two-thirds, according to S&P Dow Jones Indices.

While the allure of buying a stock similar to one of the fabled FAANG quintet – Facebook, Apple Inc. (AAPL), Amazon.com, Inc. (AMZN), Netflix, Inc. (NFLX) and Google parent Alphabet Inc. (GOOGL) at a very early stage is one of the more tantalizing prospects of stock investing, in reality, such home runs are few and far between.

Investors who want to swing for the fences with the stocks in their portfolios should have a higher tolerance for risk; such investors will be keen to generate most of their returns from capital gains rather than dividends.

On the other hand, investors who are conservative and need the income from their portfolios may opt for stocks that have a long history of paying substantial dividends.