How does the stock market work? Who decides the price of stocks? What is the logic behind the valuation of stocks?

How does the stock market work?

The stock market is the process by which stock prices are determined, stockholders acquired and companies financed.

The stock market can be seen as either part or all of the market for different types of shares. It provides a centralized venue, meaning stocks can easily be bought and sold (*i.e.* shares can be transferred amongst holders). Modern stock markets use internet connections that enable traders to sell stocks to other traders via computer systems (which may include algorithms programmed with specific directives). The stock exchange allocates securities by accepting buy orders from one broker while at the same time receiving an offer-to-sell order on behalf of another broker. The stock exchange then completes this trade by executing both simultaneously thus ensuring that security allocation does not outstrip demand for that stock.

Who decides the price of stocks?

In a stock market, stock prices are determined by stockholders. In other words, stockholders decide the price of stocks. The stock market can also be seen as a market for different types of stock shares. It provides a central venue where stocks can easily be bought and sold. Modern stock markets use computer systems to enable traders to sell stocks to other traders via the internet connection which may contain directives for algorithms controlled by traders themselves.

What is the logic behind the valuation of stocks?

The stock market works with the basis of supply and demand. It is based on fundamental analysis* (which takes various factors into account). Fundamental analysis can be seen as the study of stocks based on company performance (usually stock price, stock earnings, stock dividends, stock volatility, stock beta), economic indicators, and analysts’ expectations. These analyses are applied to a variety of markets such as forex markets and stock markets.