For many people, the stock market is a mystery. They know that it exists and that some people make a lot of money, but they don’t understand how it works. If you’re one of those people, this blog post is for you. In this post, we’re going to look at how the UK stock market works and explain some of the key terms and concepts you need to know, according to experts such as Kavan Choksi.
What is the stock market?
The stock market is a collection of markets where stocks (pieces of ownership in businesses) are traded between investors. It usually refers to the exchanges where stocks and other securities are bought and sold. The two main exchanges in the UK are the London Stock Exchange (LSE) and the Alternative Investment Market (AIM).
How does it work?
When you buy shares in a company, you become a part-owner of that company. As a result, the price of shares goes up and down depending on how well the company is doing. If the company makes a profit, its share price will go up; if it loses, its share price will go down.
Companies list their shares on an exchange, bringing buyers and sellers together. When you want to buy shares, you contact a broker who will find someone who wants to sell their shares at the price you’re willing to pay. The exchange sets the rules for trading and ensures that all trades are carried out fairly.
Why do people invest in the stock market?
People invest in the stock market for two main reasons: to make money and to protect their savings. When you put your money in a bank account, it’s usually safe from inflation (the rising cost of goods and services). However, over time, inflation can eat away at your savings. This is why some people choose to invest their money instead of keeping it in cash; if they pick the right investments, they can make more money than they would from the interest in their savings account.
However, there are risks involved with investing in stocks and shares. The value of your investment can go down and up, so you could lose some or all of your original investment. This is why it’s important to research investments carefully before buying them.
Even though there’s a risk involved with investing, it can be a good way to grow your money over time. And as we explained above, it can protect your savings from inflation.
How do you make money from the stock market?
Capital gains and dividends are two main ways to make money from the stock market.
Capital gains happen when you sell your shares for more than you paid. For example, you bought 100 shares in ABC Plc at £5 each. The company does well, and the share price goes up to £10. So you sell your shares and make a profit of £500 (100 x £5).
Dividends are payments made by companies to their shareholders out of their profits. They’re usually paid yearly, but some companies pay them twice or quarterly.
We hope this blog post has given you a better understanding of the UK stock market. Investing involves risk, and research is important before making any decisions!