When thinking about a stock exchange it is worth remembering that it is a capital market. The primary purpose of a capital market is to enable businesses to raise money to provide working capital to fund expansion and growth. In exchange for this money, the companies issue equity in the form of stock, creating stockholders. Each stockholder ownes a piece of the active business relative to the amount of money they invested.
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The biggest obstacle to stock market profits is an inability to control one’s emotions and make logical decisions. In the short-term, the prices of companies reflect the combined emotions of the entire investment community. When a majority of investors are worried about a company, its stock price is likely to decline; when a majority feel positive about the company’s future, its stock price tends to rise.
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It allows companies to raise money by offering stock shares and corporate bonds. It lets common investors participate in the financial achievements of the companies, make profits through capital gains, and earn money through dividends, although losses are also possible. While institutional investors and professional money managers do enjoy some privileges owing to their deep pockets, better knowledge and higher risk taking abilities, the stock market attempts to offer a level playing field to common individuals.
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Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, which contributes to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But for newbies, it may be better just to read the market without making any moves for the first 15 to 20 minutes. The middle hours are usually less volatile, and then movement begins to pick up again toward the closing bell. Though the rush hours offer opportunities, it’s safer for beginners to avoid them at first.
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Market Depth – the Market Depth view shows the total cumulated offer and demand for a given cryptocurrency. This is the place where we can identify the « sell walls » I was talking about in a previous section. A market that is not manipulated (or at least not overtly) will have a stair-shaped graph on both sizes, with people willing to buy or sell at different values.
Whatever happens on a stock exchange and no matter how much influence computers, algorithms and high frequency trading may have, human nature will always have an important role to play. Typically, human nature becomes more important when momentum is changing and there is excitement or panic in the air. It would seem wise to try and understand this mass psychology or group thinking which is often referred to by investors as the madness of crowds.
A local financial regulator or competent monetary authority or institute is assigned the task of regulating the stock market of a country. The Securities and Exchange Commission (SEC) is the regulatory body charged with overseeing the U.S. stock markets. The SEC is a federal agency that works independently of the government and political pressure. The mission of the SEC is stated as: "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."