What is the bag and how does it work?

Before explaining how the stock market works, you must know exactly what the stock market is and who participates in this market.

What is the bag?

The stock market is a private entity that facilitates the exchange of financial assets such as stocks, debt, etc.

The stock market is a virtual and not a physical place, for example, in Spain, it is called the Spanish Stock Market Interconnection System ( SIBE ). It is an interconnected network of computers with a central computer that is the one that contains all the existing information.

It has a fundamental role in the economy since investments in the stock market allow companies to get money to develop their activity, issuing shares to sell them to savers, so that they become shareholders of the company. When fulfilling such an important function in a country, its proper functioning must be supervised and protected; In the case of Spain, the official supervisory body is the National Securities Market Commission, which is a public body.

Who participates in the exchange?

It is interesting to know the role of each actor that participates in this stock market:

The issuer of the shares are the companies that issue their securities to be traded on the stock market.

The stock market regulator that supervises the operation of the stock market.

Intermediaries or brokers that facilitate negotiation by offering services and mechanisms to know what to invest in in the stock market.

Investors, people or entities who buy or sell these shares in order to make a profit

Stock indices are benchmark indices that are formed based on a set of securities listed on a stock exchange.

How does the bag work?

Negotiations of the shares between buyers and sellers are carried out through an intermediary, that is, a stockbroker or broker since the parties cannot contact without the broker.

To start investing in the stock market, you must choose a broker that facilitates transactions on the stock market, as well as the seller of the shares that a broker will use to introduce their shares in the stock market.

The next thing will be to define the composition of your securities portfolio so that each investor will buy the selected assets on the stock market.

This purchase of shares is registered in the account of the securities deposit, whose owner has to manage the capital, buying and selling shares through the broker.

How does the stock auction work?

The key to the operation of the stock market is in the stock market auction since it is the place where sellers propose to sell shares at a certain price and buyers propose to buy shares at a certain price, through the use of the stock market order system they are sent to the market the information of what they want to buy, at what price and under what conditions.

Let's see a simple explanatory example so that you can adapt it to the bag and understand how it works.

Imagine that you walk into a greengrocer where anyone can buy and sell products, and you ask for tomatoes at a price of 2 euros, and the fruit vendor replies that they don't have any left, that he only has 4 euros and he has 1 kg left.

In this situation, a purchase action would have been launched (tomatoes at 2 euros), as it does not fit any situation it will not be executed, in this case, the buyer decides whether to wait for the price to decrease or not.

Now, a new buyer comes to the greengrocer and tells him that he buys him the kilo of tomatoes for 3 euros, and the greengrocer executes the purchase order because he is happy to sell his product for the price that the second buyer has offered him.

And finally, imagine that another new fruit vendor enters that needs to sell the product as soon as possible, and sees that the first buyer is there and that he pays 2 euros to buy the kilo of tomatoes, and then he executes the sale, causing a decrease in the price of that product, going from 4 euros to 2 euros.

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