What is the stock market?
The stock market, as its name implies, is a platform where stocks or shares are traded. There are numerous stock markets worldwide, with The London Stock Exchange (LSE) serving as the primary exchange in the UK.
Market indices are formed by grouping together shares of companies, combining their values as a weighted average where larger companies have a greater impact on the index's value. Companies of comparable size and value are typically grouped together. When you hear about the market being "up" or "down," it refers to fluctuations in stock market indices, indicating whether they have risen or fallen.
"When you own shares in a company that pays dividends, you receive dividend payments. If the company performs well and increases its profits over time, the dividend amount it distributes can also grow."
Stocks are actively bought and sold throughout each trading day, causing their prices to fluctuate continuously. When the price of a stock rises sufficiently to cover any trading fees, you have the opportunity to sell your shares at a profit. These gains are referred to as capital gains. Conversely, if you sell your stock for less than the purchase price, you'll experience a capital loss.
Ultimately, as an investor, your success hinges on the performance of the company. Strong earnings are typically necessary for a company to pay dividends, and investor demand plays a crucial role in realizing capital gains.