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What is the Stock Exchange
and how does it work?
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The Stock Exchange is nothing more
than a giant globally network
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tend to organize the market place where every day
huge sums of money are moved back and forth.
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In total over sixty trillion (60,000,000,000,000)
Euros a year are traded.
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More than the value of all goods and services
of the entire world economy.
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However it's not apples or second hand
toothbrushes that are traded on this marketplace.
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But predominantly securities.
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Securities are rights to assets,
mostly in the form of shares.
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A share stands for
a share in a company.
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But why are shares traded at all?
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Well, first and foremost the value of a share
relates to the company behind it.
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If you think the value of
a company in terms of a pizza.
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The bigger the overal size of the pizza,
the bigger every piece is.
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If for example Facebook is able to greatly
increase its profits with a new buisness model.
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The size of the companies pizza will also increase,
and as a result so will the value of its shares.
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This is of course great for the share holders.
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A share which perhaps used to be worth 38 euros
could now be worth a whole 50 euros.
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When it's sold this represents
a profit of twelve euro per share!
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But what does Facebook gain from this?
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The company can raise funds by selling
the shares and invest or expand it's buisness.
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Facebook, for example, has earned sixteen billion
dollars from it's listing on the Stock Exchange.
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The trading of shares though,
is frequently a game of chance.
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No one can say which company
will preform well and which will not.
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If a company has a good reputation,
investors will back it.
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A company with a poor reputation or poor
performance will have difficulty selling its shares.
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Unlike a normal market in which goods
can be touched and taken home
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on the Stock Exchange only
virtual goods are available.
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They apear in the form of share prices
and tables on monitors.
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Such shareprices can rise
or fall within seconds.
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Shareholders therefore have to act quickly
in order not to miss an opportunity.
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Even a simple rumor can result in the demand for
a share falling fast regardless of the real value of the company.
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Of course the opposite is also possible.
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If a particularly large number
of people buy weak shares.
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Because if they see for example
great potential behind an idea.
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Their value will rise as a result.
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In particular young companies
can benefit from this.
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Even though their sales might be falling,
they can generate cash by placing their shares.
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In the best case scenario this will result in
their idea being turned into reality.
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In the worst case scenario, this will result in a
speculative bubble with nothing more than hot air.
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And as the case with bubbles,
at some point, they will burst.
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The value of Germany's biggest thirty companies
is summarized in what is known as the DAX share index.
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The DAX shows how well or poorly
these major companies
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and there by the economy as a whole
are performing at the present time.
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Stock Exchange is in other countries
also have there own indices.
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And all of these markets together
create a globally networked marketplace.
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