Understanding the Stockmarket

How the stock market works

The stock market has been around for many centuries, having evolved over the years in line with technological changes. A stock market is also known as a stock exchange is a market where securities are bought and sold. It is also a platform where capital is raised to fund the operations of a business.

The stock market is thought of in terms of its two separate market functions:

What happens when you buy a stock

Investors must carry out the transactions of buying or selling stocks through a broker. In a nutshell, a broker is simply an entity licensed to trade stocks on a stock exchange. A broker may be an actual person whom you tell what to buy and sell. More commonly, this is an online broker — say, TD Ameritrade or Fidelity.

When you buy a stock, here’s the simplified version of how it works:

The Primary Market

The Stock Exchange provides an avenue where, for example, a company raises funds (capital) to expand its businesses by offering new shares to the public, and this process is referred to as a float or initial public offering (IPO). The public, therefore, extends capital to the company in return for part ownership (shareholding) in the company. This aspect, where an institution raises money by selling securities directly to investors, constitutes the primary market.

The secondary market

The stock exchange provides an avenue for investors to dispose of their investments for cash or other securities. In the secondary market, buyers and sellers come together, determine a price and then exchange the shares for payment. This is what the general public observes on a day-to-day basis.

The bottom line on stock markets

Why is this important to understand? In short, knowing the basics of how stock markets work can help make you a better investor. You’ll understand why your investments can be bought and sold at a second’s notice. And you’ll also understand that the market works like an auction system, and prices are governed by supply and demand – not just the underlying business fundamentals.

Singapore Exchange SGX

Singapore Exchange Regulation (SGX RegCo) is a wholly-owned subsidiary of Singapore Exchange (SGX) that undertakes all frontline regulatory functions on behalf of SGX and its regulated subsidiaries.

SGX ensures that SGX RegCo is provided with adequate budget, resources, and assistance as may be required to discharge its functions. In carrying out its activities, SGX RegCo is committed to fostering trust in and supporting the continued development of SGX’s markets.

The SGX RegCo Board ensures that SGX RegCo performs its duties independently of the business functions of SGX and its regulated subsidiaries. The SGX RegCo Board is also responsible for the arrangements and processes for managing any conflicts between regulatory duties and commercial objectives within SGX.

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