A stock market is any private or public market that exists for the trading of stock or its derivatives. The agreed price for this stock is called a security, which is a negotiable instrument of trade that represents the financial value of the stock. This security can either be in the form of equity also known as ‘common stock’ or ’shares’ or it can be in the form of debt, which refers to ‘bonds’, banknotes and debentures. The many different stock markets that exist throughout the world are often referred to as ‘the stock market’.

Participants in the stock market can be anyone from individuals to huge multi-national corporations, investing anywhere from a few hundred dollars to numbers in the millions and billions. The origin of stock markets goes back a long way, at least a couple of centuries to the beginning of the Industrial Revolution. Even though the stock market has been around for so long and affects so many people’s lives either directly of indirectly, lots of people still fail to have at least an elementary understanding of its purpose and structure.

In basic terms, the stock market is a way for an organisation to raise money. By allowing themselves to be traded on the public market a company is generally attempting to raise the capital that they may need for expansion or investment purposes. The market revolves around what are known as ’shares’, which are simply a measured unit of ownership in a company. Shares are a very liquid form of ownership in a company as they are neither fixed or guaranteed with regards to how their value is returned to the initial investor. This feature of flexibility is very attractive to investors as they are not tied down to any particular capital and can buy and sell new and different shares easily.

Along with stocks and shares are another type of security which are actually debts and are best represented by ‘bonds’, and rather than representing ownership in a company a bond is in simple terms a secured loan. This fluid system of trade in shares and bonds is the basis of what the stock market is and how it operates. The constant push and pull of assets and liabilities across markets creates a flexible matrix of financial information which stock market traders attempt to manipulate to their benefit.

The behaviour of the stock market can be incredibly hard to predict at times, as it is prone not only to reaction but also to over reaction. A truly great stock market trader needs to know about human psychology as well as economics. One particular and well known psychological factor describes how people see patterns within a system even when there is nothing but noise there. Some of this irrational pattern recognition behaviour has led to stock market crashes in the past as people have tried to reason their way out of unreasonable situations. The stock market is very simple in its essence, however anyone who has tried to make money from it also knows that it can be incredibly complex as well.