The stock market is a market where plaintiffs and capital bidders come into contact, those who carry out transactions through authorized intermediaries . Many times it is known simply as “the bag.”
Stock exchanges allow negotiation and exchange between companies that require financing, and savers (people or organizations). The latter seek to invest their surplus money to obtain a return.
In stock exchanges, both variable income (shares) and fixed income (debt) are usually traded , the first case being the best known.
It should be noted that stock exchanges can be physical or virtual places that are managed by private organizations. This, with the prior authorization of the corresponding governmental or regulatory entity.
Origin of the stock market
The stock exchanges have their origin in the city of Bruges, Belgium, where the family of bankers Van der Bursen organized in their palace meetings where assets were traded and commercial operations were carried out. The concept of “bag” emerged from the family shield that had three leather bags.
The first modern stock exchange emerged in 1460 in Antwerp, Belgium. Later, in 1570 the London Stock Exchange was created, in 1595 that of Lyon (France) and in 1792 that of New York.
Functions of the stock market
Among the most important functions of the stock exchange are:
- Channel savings towards productive investment.
- It provides truthful and permanent information about the values, the situation of the companies registered in the stock exchange, the operations carried out, etc.
- It offers liquidity, since investors can convert their assets (shares or others) into money.
- It provides legal certainty. That is, the transactions are backed and will be answered by them.
Stock exchanges have a fundamental role in economic development as they facilitate transactions and channel savings. Thus, a better allocation of resources is feasible.
Advantages of the stock exchange for companies
Participating in a stock exchange can bring several benefits to companies, among which are:
- Greater access to financing.
- Better image for the public.
- It allows you to estimate the value of the company at any given time and encourage its administrators to increase this value.
- Shareholders can obtain liquidity in case they choose to sell their shares.
Advantages of the stock exchange for savers
For people or entities that have savings, the stock market can give you several benefits, among which are:
- Greater options to make your savings profitable.
- Greater access to information.
- It allows you to buy and sell an asset as many times as necessary.
- Access a regulated market that offers security.
How a stock exchange works
The stock market is considered a secondary market since it transfers ownership of financial assets that have been previously issued (in the primary market )
Transactions are made through authorized financial intermediaries , popularly known as brokers or brokers. These professionals operate on behalf of the company or individual that hires them. In exchange, they charge a fee or fee for their services.
It is worth mentioning that there are currently virtual stock exchanges where it is easy to contact a broker and buy shares online.
On the other hand, companies that wish to participate in a stock exchange must make their financial statements public . That way, it is possible to obtain accurate information about your current situation and growth potential.
In Spain there are four stock exchanges in: Madrid (founded 1831), Bilbao (1890), Barcelona (1915) and Valencia (1970).
Reviews to the bag
Despite what has been described above, the stock market not only has advantages. While this market has boosted access to financing and has allowed the growth of many successful companies, it also implies risks.
In that sense, we must emphasize that in the stock market prices (quotes) can fluctuate strongly. An action today can be worth 4 and tomorrow 3.7 or even go bankrupt (be worth 0). Therefore, in the same way that positive returns can be generated, money can also be lost.
It should be noted that the variability of the price of an asset is called volatility . The higher it is, the more risk it represents.
Therefore, investing in the stock market is an activity that can offer benefits. However, you can also lose part or all of the money invested (sometimes even more). This can happen, for example, when an action is not accurately valued, that is, if it is overvalued or undervalued.