Almost everyone has heard of the stock market, but not every one understands how it runs. The thought of investing can bring too much stress to newbie investors as they imagine women and men in suits flooding a stock exchange floor and shouting. Luckily, the stock exchange system isn’t as terrible as it seems.

The functioning of a stock market is related to an auction in some ways. The price of stocks is calculated by the price individuals are ready to pay for them. So there is no fixed price.

The stock market functions on the system of supply and demand. Different stocks are sold and their values keep on fluctuating continuously due to the variation in supply and demand by sellers and buyers.

The greatest stock exchange with the largest daily turnover rate is New York Stock Exchange also called as NYSE. Another popular market where stocks are traded electronically is the Nasdaq.

Almost all trading is done behind the scenes. A person sitting on his armchair can sign in to the stock brokerage web site and make their trades and then see their orders filled almost instantly if it is done during the work hours. The stock broker then buys or sells the stock for the trader.

Those looking to trade stocks have different options. A person can buy stocks, sell their stocks, and even short sell them. Short selling is simply placing a bet that a stock is going to go down.

What a person does is “borrow” a stock from some other trader and then instantly sell it. Then when the stock value reduces, the person purchases the stock back and hands it back to the trader it was “borrowed” from.

The basic target of a stock market trader is to sell the stocks for a higher sum and earn money. In case of short selling, you make money when the stocks decrease in value.

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