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A beginner’s guide to stock prices and the stock market

Are you intrigued when you hear daily news reports of the FTSE 100 Index closing up or down? Do you want to know why stock prices fluctuate? Well, you’ve come to the right place! Here are some basic pointers to help you find your way around the stock market.

First of all, the stock market is simply a marketplace where people can buy and sell company stocks and shares. That can be in physical form – for example, at stock exchanges in many major world cities, including London, Tokyo and New York – or in virtual form, by way of electronic trading.

And just like any other market, the stock market largely operates on a supply and demand basis. If a company is doing particularly well financially, with good profit forecasts, people will want to buy shares in it (shares make up the individual segments in a portion, or stock). So as the company becomes more sought-after, stock prices will rise. It works in reverse, too: if people are clamouring to sell stock, prices are likely to fall.

Another factor in how stock prices are determined is the price to earnings ratio of stock. This gauges the price paid for a share compared with earnings per share, i.e. the net income the company has generated per share.

However, there are many other reasons why the stock market will go up and down throughout the day – governments’ economic policies; interest rates; and even good or bad publicity about a company or its key people can have an impact on how investors behave.

But the main point to remember when buying and selling stock is that an element of risk, and the unknown, is always involved - so it is advisable to do as much research as possible before parting with any money.

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