Know How Does the Stock Market Work? | My Espresso

How Does a Stock Market Works?

The stock market offers a platform where all businesses raise capital by selling off their shares of equity or stock to all investors. Stocks provide all the stakeholders with a residual claim and voting rights on the corporate earnings as dividends and capital gains.

Published on 20 February 2023

All institutional and individual investors come together on the stock exchanges to sell or purchase shares within the public market. Do you want to know ‘how stock market works’ in detail? This post can provide you with the information you need.

The Stock Market: How Exactly Does It Work?

When you purchase a share of stock from the stock market, you're not purchasing it from the business. But instead, you are purchasing it from a current shareholder. But ‘how stock market works’? Well, it works through a grid of exchanges, for example, the Nasdaq or the New York Stock Exchange.

All companies list their stock on the exchange platform through the IPO or Initial Public Offering process. The investors purchase all those shares that enable the organization to raise funds to grow its business. Investors are free to sell and purchase all these stocks between themselves.

Buyers provide a "BID" or the highest amount they are willing to pay. This amount is lower than the one seller "ASK" for during the exchange. This particular difference is known as the "BID-ASK" spread.

To make sure the stock market is working, a trade should take place. For that, a purchaser has to increase their price, or the seller must decrease their price. When you're learning ‘how stock market works’, all these things might sound a bit complicated. But it's the computer algorithm that does the majority of the price-setting calculations.

So, when purchasing stock, you will see the bid-ask spread, ask, and bid on the broker's website. But in certain cases, the discrepancy will be pennies and will not be a concern for all long-term investors and beginners.

Apart from that, when the topic is about ‘how stock market works’, historically, it took place within the physical marketplace. But in today's era, the stock market functions electronically through online stockbrokers and the internet.

All the trades take place in the form of a stock-by-stock basis. But the total stock prices move in pairs because of the economic reports, political events, news, and other aspects.

What's the Point of the Stock Market?

Now that you have found an answer to the question ‘how does stock trading work’, you might be wondering what the point of the stock market is? Well, there is a reason why it exists. The stock market is a platform for individuals selling and purchasing fractional ownership within a publicly traded firm.

It can distribute the control of the world's biggest organizations among millions of individual investors. Through the process of selling and purchasing decisions of all those investors, it helps determine the value of those organizations.

When you're getting to know how stock market works, you will find out that the market lets both sellers and purchasers bargain prices. This negotiation work can maximize fairness for both parties.

How is that done? The stock market provides them with both the lower possible purchasing price and the highest possible selling within a given time. All the exchanges track down the demand and supply of the stocks listed on the exchange platform.

The demand and supply can determine the prices of every level at which the traders and investors want to sell or purchase. This particular process is known as "PRICE DISCOVERY."

Price discovery is vital to how the stock market works because it helps determine how the latest information affects a company's value.


Stock marketers are the heartbeat of the stock markets, and experts sometimes utilize stock prices as a barometer for economic health. The stock market enables all companies to sell their shares to countless retail investors, and it's a crucial capital source for all public firms.

Chandresh Khona
Team Espresso

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