A stock market connects investors, companies, exchanges, brokers, clearing systems and regulators.
Primary vs secondary
Companies raise capital in primary markets. Investors trade existing securities with one another in secondary markets.
The chain
Investor → broker → exchange/venue → clearing → settlement → depository/custody, depending on the market.
Learn next
Shares, orders, bid-ask spread, market capitalisation, financial statements and risk.
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Build the mental model before buying
A stock represents a fractional ownership interest in a company. The market price is the price at which shares currently trade; it is not a guarantee of what the business is worth.
Price, value and return are different
Return depends on both business performance and the price paid. A great company can be a poor purchase at an excessive valuation, while a troubled company can rise if expectations improve.
Your first research workflow
- Understand the business.
- Read recent financial statements.
- Check debt, cash flow and returns on capital.
- Compare valuation with history and peers.
- Write the main risk and what would change your mind.
Beginner checklist
- ☐ I know how the company makes money
- ☐ I know what I am paying for earnings
- ☐ I checked debt and cash generation
- ☐ I understand the biggest risk
- ☐ I know why the market could disagree with me