The Stock Exchange

Passage A

The stock exchange is nothing more than a giant globally networked and organized marketplace, where everyday huge sums of money are moved back and forth. In total over trillion Euros a year are traded, more than the value of all goods and services of the entire world economy. However, it’s not apples or second-hand toothbrushes that are traded on this marketplace, but predominantly securities. Securities are rights to assets mostly in the form of shares (also called stocks). A share stands for a share in a company. When you buy shares in company, it means that you actually own a portion of that company. But why are shares traded at all? Well, first and foremost, the value of a share relates to the company behind it. If you think of the value of the company in terms of a pizza, the bigger the overall size of the pizza, the bigger every piece is. If, for example, Facebook is able to greatly increase its profits with a new business model, the size of the company’s pizza will also increase and, as a result, so would the value it shares. This is, of course, great for the shareholders. A share which perhaps used to be worth 38 Euros could now be worth a whole 50 Euros. When it's sold, this represents a profit of 12 Euros per share. But what does Facebook gain from this? The company can raise funds by selling the shares and invest or expand its business. Facebook, for example, has earned 16 billion dollars from its listing on the stock exchange. So as a shareholder, you benefit by receiving part of the profits or dividends and sharing in the growth of the value of the company. Stock market investment gives you the unique opportunity to take a direct part in tl growth and success of companies. For companies, the success of their stock is very important to their well-being. When they need a large amount of capital for the boost of their production a business, but their fund is far from adequate, it’s the stock issuance that makes it possible for them to fill up the gap.

 

When a stock has been issued in the primary market and become negotiable for free purchase and resale in the second market, its price will depart from its original face value and fluctuate u and down along with the market tone. Stock price changes reflect supply and demand. If there more purchases than sales on it, which render its price up, it’s called Bull Market; if on the contrary, it’s called Bear Market. A bull market means profits for individuals and companies. drop in the markets especially if the drop is great and sudden, can wipe out a person’s life savings or ruin a company. Stock indices such as the Dow Jones Industrial Average (New York), the Hang Seng Index (Hong Kong), and the DAX Share Index (Germany) are measures of whether the market is generally rising or falling. They are based on a representative sampling of important publicly-traded companies. They show how well or poorly these major companies, and thereby the economy as a whole, are performing at the present time.

 

The trading of shares, therefore, is frequently a game of chance. Some people even consider as respected brand name, dominant at market share, strong leadership and solid financial foundation playing the stock market to be a form of gambling. Although the characteristics of a company such can help to evaluate a stock, no one can definitely say which company will perform well and which will not. If a company has a good reputation, investors will back it. A company with a poor reputation or poor performance will have difficulties selling its shares. Unlike a normal market in which goods could be touched and taken home, on the stock exchange, only virtual goods are available. They appear in the form of share prices and tables on monitors. Such share prices can rise or fall within seconds. Shareholders, therefore, have to act quickly in order not to miss a opportunity. Even a simple rumor can result in the demand for share falling fast, regardless of the real value of the company. Of course, the opposite is also possible. If a particularly large number of people buy weak shares because they see, for example, great potential behind an idea, their value will rise as a result. In particular, young companies can benefit from this. Even though their sales might be falling, they can generate cash by placing their shares. In the best-case scenario, this will result in their idea being turned into reality. In the worst-case scenario, this will result in a speculative bubble with nothing more than hot air. And as in the case with bubbles, at some point they will burst.

 

However, the success of the stock market is watched by people worldwide. In general, although there are rises and falls in the stock market, history shows that over the long term, the value of the stock market rises. In the US, which has a long history of deregulated stock market the average real return per annum after inflation is approximately 10%. So share investments produce better returns than fixed interest investments, particularly when money is invested long term. Buy a diversified portfolio, be patient and rewards will come. What's more, dire investment in the stock market also gives you control over where you put your money. You decide which companies you want to invest in and when the time is right for you to see your shares. If you want to be in control, stock market investment is a good option Another attractive feature of stock market investment is the flexibility to change your investments when your personal circumstance change. For example, if you need money for a well-earned break, an extension on our house or your children’s education, all you need to do is to sell your shares.