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| *Ostroff, Fair and Company>>>Investing |
Hey...what, in your opinion, are the differneces between the stock exchange market and a normal market? |
Hey...what, in your opinion, are the differneces between the stock exchange market and a normal market? I am not certain what you mean by normal market. Do you mean like a grocery store? A grocery store sets their price and you can choose to either buy or not. In a stock market, it is an auction process more or less. The price is set by an auction between buyers and sellers. A seller can offer to sell at a given price, and a buyer can either choose to accept the price or can offer to buy at a different price. Because there are many potential buyers and sellers, the price is continually changing. In the grocery store the price is pretty much set by the seller. Used car lots are a little different. The stock market is where people sell mass quantities of things such as juice, oil, and steel. The normal market or consumer market is where we come in and buy single things such as poptarts. lol PRICES: In a normal market (e.g. local store) two people come together and exchange goods for an agreed price e.g. you pick up a can of tomatoes and agree with the price then buy it. In a stock exchange market however, there is really a dual auction occurring. Multiple buyers will bid on their asking price e.g. I am willing to buy a can of tomatoes for $1. Whilst simultaneously multiple sellers will bid on their selling price e.g. I will sell my can of tomatoes for $1.10. When the buying & selling price of two parties are equal, they are matched up by the stock market and a transaction occurs (sometimes called a tick). It is these two competing forces of buyers and sellers which drives prices. GOODS EXCHANGE: In a normal market there is a physical asset exchanged e.g. my can of tomatoes. In a stock market however, the asset is really only on paper. Owning shares in Microsoft doesn't mean you can go to Microsoft and redeem your share for some of their land. The paper asset only gives you certain entitlements: receive dividends, vote a general meetings and participate in a winding up of a company. VOLUME: Arguably the volume of trades on a stock exchange is also far greater due to the ability to tap into the world market. Anybody anywhere in the world can buy and sell stocks on the NYSE as long as they have a computer and the Internet. |
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