investing guide

The Stock Market is Simply a Large Auction

stock market

The stock market is a large auction where ownership in a business is being auctioned. At the major stock exchanges individual traders buy and sell shares of stocks. It all really comes down to the simple principle of supply and demand. Prices of stocks are driven higher when there are not enough shares available to fit the demand, and vice versa when there are too many shares available and not enough demand.

This is also why the stock market can fluctuate widely at times regardless of the bottom line of any one particular company. A large shareholder can either flood the market with a lot of shares or buy a large amount of shares, thus driving the price of the stock higher and lower.

This is one of the main problems of being a small individual investor, especially if you are a small short term investor. You may be at the whims of the large professional investors who are controlling a lot of shares.