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