The stock market, which enables companies to fund their operations by selling shares to investors, is easier to understand that it looks.
The famous Pont au Change, overlooking the Seine and linking the Ile de la Cité to the right bank of Paris, takes its name from the origins of the French stock market, which dates back to the 12th century. The very first brokers in history were then charged by the banks to regulate the debts of the agricultural communities. Today, the functioning of the stock market seems incredibly complex, but its basic principles are actually simple to understand.
Here is a complete summary of the information you need to understand how the stock market works.
Initially, the stock market was created to help companies find sources of financing. Companies have only two solutions to develop their activity: borrowing from banks or finding investors. Thus, the stock market is a market in which sellers (companies) meet buyers (investors, professionals or individuals). The "commodity" traded is the shares of the companies, which are small portions of their capital. The stock market has existed since the early 19th century.
"Open outcry" sales came to an end in July 1987, and the Palais Brongniart has not been the headquarters of the Paris Stock Exchange since 1998. Today, all stock market transactions are dematerialized and are carried out through computerized trading platforms. Buyers and sellers no longer meet in person. On the Paris Stock Exchange, the total daily volume of transactions, centralized by Euronext, is around 5 billion euros. As these trades take place throughout the daily sessions, share values fluctuate constantly according to supply (the shares offered for sale by companies) and demand (the shares that investors wish to obtain).
Nowadays, investors have two main options for entering the stock market :
The stock market price is the result of the meeting between supply and demand, which can be influenced by factors that include :
In the stock market, the most liquid shares are quoted continuously throughout the session. On the Paris Stock Exchange, trading sessions run from 9:00 a.m. to 5:30 p.m. They include a pre-opening from 7:15 am, allowing the addition of numerous buy and sell orders before the start of the session, as well as a post-close, from 5:30 pm to 5:35 pm, which sets the last share prices.
Once the negotiations are completed, a clearing house performs a dual operation : it takes all the shares traded from the sellers' portfolios and the cash counterparts from the buyers' accounts. Once the validity of the transactions has been verified, they are settled and delivered.
The stock market has two main types of markets :
In addition, the world's major stock exchanges have set up stock market indexes, which reflect the market trend for investors. In France, the CAC 40 represents the 40 largest stocks on the Paris stock exchange.
The stock market is therefore an ancient institution that has undergone many changes. However, its basic modus operandi has remained the same: that of a traditional market, allowing transactions between buyers and sellers. Formerly based on “open outcries", stock exchange transactions are nowadays fully digitalized and are carried out continuously in considerable volumes and at considerable speeds.