How does the stock market work?

The stock market often suffers from an image of “speculative temple” without faith nor law … However, originally, the stock market was created so that companies could finance their development projects. Simply put, a company has two solutions to find money: either borrow from banks, or go “up” in the market by issuing shares. When she chooses this second solution, she needs to be able to meet the investors, professionals or individuals, to sell them her project, that is to say to convince the future shareholders to accompany her in her development …

A meeting place

As in a “traditional” market, where traders meet consumers, the stock market is a market where listed companies go to meet investors. It is a place where buyers meet sellers live and continuously during each trading session … Concretely, there is a transaction when a seller and a buyer agree on the transaction price of one or more several shares, which is equivalent to a share of the capital of the company that changes hands … On the Paris Stock Exchange, a regular meeting corresponds to an average volume traded of about 5 billion …

Dematerialized transactions

For a long time, since the beginning of the XIXth century, the quotations took place at the “auction”: Gathered around the basket of the Palais Brongniart in Paris, the accredited stockbrokers met every day at noon to determine the price of the registered shares is popular. So there was only one daily reference price for each company … This period is gone since the end of the 80s, the transactions having been dematerialized. This means that the exchanges are now conducted by computer, without meeting “physical”, throughout the day, from 9:00 to 17:30. The value of an action therefore evolves “continuously” during the session according to the orders that feed the market in just one step …

The CAC40 in the spotlight

In order to give investors an indicator reflecting the trend of the market, which is thus made up of several hundred companies, the main world stock exchanges have created benchmark indices: in France, the best known is of course the CAC40 which groups together 40 companies judged the most representative of the Paris Stock Exchange. When most of the stock goes up, the CAC progresses and vice versa … The other indices most followed by the scholars are the Dow Jones and the Nasdaq on Wall Street, the Nikkei in Tokyo or the Dax in Frankfurt and the Footsie in London…