INTRODUCTION TO THE STOCK MARKET

Investing in the stock market can be fearsome, especially during the beginner’s phase because of the complexity and the risks involved in the market. By definition, the stock market refers to public markets that exist for "issuing, buying, and selling stocks" that trade on a stock exchange or over the counter – a place where investors can buy and sell ownership of such investable assets. Stocks or also known as equities, in addition, represent fractional ownership in a company and the stock market serves two important purposes behind its establishment:

1. First, it is to provide capital to companies that are listed in the stock market so that they can use it to fund and expand their businesses. For example, if a company issues one million shares of stock that initially sell for $10 per share, then that provides the company with $10 million of capital which can be used to grow its business.

2. Second, it is to render investors (people who purchase and own stocks) the opportunity to share in the profits of publicly-traded companies. For example, if an investor buys shares of a company’s stock at $10 per share and the price of the stock subsequently increase to $15 per share, the investor can then realize a 50% profit on their investment by selling their shares.

To kick things off, a stock or also known as equity is a security that represents the ownership of a fraction of a corporation This, in theory, entitles the owner of the stock to a proportion of the corporation's assets as well as profits equal to how much stock they own, and the units of stock are called "shares". When it comes to the technicality procedure of buying and selling stocks, one must go through brokers who are authorized to trade on the market or stock brokerage companies that allow you to trade using their platform. Hence, here’s the simple process of how to invest in the stock market:

1. To begin investing, you must open a trading account with a broker or a stock brokerage platform (in this case, the securities company). And, a trading account that you must open is basically where you execute your "trading" – a place for you to buy or sell orders.

2. The broker or the stock brokerage platform (in this case, the securities company), subsequently, opens another account for you aside from your trading account which holds the financial securities in your name. As these two accounts are then linked to your bank account, you need to provide the Know Your Customer (KYC) documentation that includes verification via government-authorized identity cards.

3. Most brokers and brokerage platforms, nowadays, have an online KYC process that allows you to open an account in a couple of days by submitting your verification details on a digital basis. Once it is opened or registered, you may begin your trading with your broker or brokerage company via online or phone calls.

Furthermore, the concept behind how the stock market works is actually quite simple. You probably have heard of the New York Stock Exchange. Companies in United States list all the shares of their stocks on the New York Stock Exchange through a process called "IPO – Initial Public Offering". Investors can then buy and sell these stocks among themselves, and the stock exchange tracks the supply and demand of each listed stock. The amount of supply and demand, additionally, helps determine the price for each stock or the levels at which stock market participants (e.g. investors and traders) are willing to buy or sell. At this stage, the buyers offer a "bid" which is the highest amount that they are willing to pay but is usually lower than the amount that the sellers "ask/offer" for in exchange. This difference in the stock market terminology is called the bid-ask spread.

Meanwhile, there are some financial instruments offered by the stock market, such as:

1. Equity shares: They are issued by companies that are listed, and the equity shares entitle you to receive a claim to any profits paid by the company in the form of dividends.

2. Bonds: They are issued by companies or governments and represent loans made by the investor to the issuer. These bonds are issued at a fixed interest rate for a fixed tenure and therefore, they are known as debt instruments or fixed income instruments.

3. Mutual Fund: They are issued and operated by financial institutions and are considered as a vehicle to pool money to be invested in different financial instruments. The amount of profits derived from the investments will then be distributed between the investors in proportion to the number of units, or investments that they hold. At this point, a fund manager takes calls on what to buy and sell on your behalf to generate better returns of the investments you have made.

4. Derivatives: A derivative stems from the value of its performance of an underlying asset or asset class. These derivatives, in fact, can be commodities, currencies, stocks, bonds, market indices and interest rates.

Bottom line, all brokers are paid based on a transaction fee from every trading incurred which includes taxes and dues paid to the government.