Do you keep seeing advice to invest your money into shares but have zero clue what the share market (also known as the stock exchange) even is? We’re going to break it down into bite-size pieces for you to understand.
Let’s clear up some confusion before we start. The share market and the stock market are the same thing, share market is the Australian term, the ‘stock market’ is the U.S. term.
What is a share?
It’s a single unit of ownership in a company or financial asset. 1 share = a proportion of a company, meaning if you buy a share of a company, you *technically* own a tiny part of that company. That single unit has a value, depending on the company’s value and success. The more successful the company (with a higher revenue), the higher the price of the share.
What is the share market?
This is where you buy and sell your shares, it’s also known as an exchange. In Australia, the primary exchange is called the Australian Securities Exchange (ASX).
The share market is not one specific website someone can go to, and investors can’t buy shares directly from ‘the share market’. Individual investors need what is known as a ‘broker’. Think of a broker as a middle person who conducts the transaction between the investor (you) and the exchange (the share market). They complete the transaction and charge a fee to do so.
The market has open and close times when you can and can’t trade. The ASX is open between Monday to Friday from 10am to 4pm (Sydney time). Outside of those times, trades cannot happen.
Why do people do it?
Investors (people who buy shares) aim to buy shares and eventually sell them (hopefully) at a higher price than what they purchased the shares at to make a profit.
Owning shares is also a way to diversify your wealth, and have different streams of income. People can make quite a lot of money from the share market if done correctly and with the right knowledge.
But what goes up, can also go down. Share prices can also go down, meaning investors can lose money too. That’s why education around which companies and industry sectors you invest in is super important.
Why do the prices of shares change?
The price could change for numerous reasons, but it’s usually due to new information about the company. Anything from new earnings, the business changing, sentiment, world news, leadership changes, to people of public interest tweeting about a company can all have an effect on the price of the share. Also supply and demand, the more people that purchase shares from a company, the higher the price goes.