The Exchange is an independent institution that serves as a link between companies and investors.
Companies that want to open their capital to public offering, approach this institution and after completing the necessary requirements to open its capital to the public in general are able to deliver part of its share capital in exchange for cash which will be used for different purposes within the company, either for new ventures, financing, debt cancellation, expansion, modernization, etc.
Let's take a simple fictional example to clarify the picture practically. Suppose you own a business and invested € 10,000 to create and operate it. Well, now you need money for a new project in the amount of € 3,000 but does not have the capital.
His next step to getting that amount would offer 30% of your company in exchange for money. You. For example could go to offer by public offering regime, 3,000 shares of its company value of 1 € each.
Here we have a simple scenario: you got the money to invest and investors in return received shares of your company because they believe in its success. If we look at it from the other side of the counter, we see that the investor now has shares instead of cash.
Why someone would decide to change their money for shares? . Simple. Who she opted for this change assessed the possibilities that exist with respect to this company and concluded that the market would win against its competitors, so increase sales, generate more profits and the company could be worth tanti year - end 12,000 €.
According to this reasoning and met investor perception, a few months after investing their money in stocks costing 1 €, said investor would these same actions which would value € 1.20 each, which will he left a 20% gain by seeing the possibility of future growth.
Every day in financial markets worldwide million shares change hands and this is due to the assessment that investors make each company . While for some it's time to stop participating in a project, for others begins to be profitable. This allows free movement of supply and demand for shares and is basically operating the market.
If a lot of investors observe that certain company will perform better in their next balances, surely there will be much demand for stocks and in turn short supply, which will force those who wish to buy to pay a premium price for them. Conversely, when a company shows signs of worsening, surely equity holders decide it's time to try to sell in this case will be greater supply than demand so prices tend to fall.
This oscillation is what allows the daily price movement is based purely on supply and demand. As simple as that.
If we clear what the situation and the sense of investing in a stock market and if at this point, the issue sparked your interest, you're welcome to continue to know this interesting world from the contents of our web which, although they are they targeted the foreign exchange market are also often applicable to shares.