Latest stock market news is in every business news. Words like "The Dow Jones Industrial Average rose or fell 2 percent" are daily routine. But what causes this action and how does the stock market work?

For accurate answering the question how does the stock market work, it's necessary to explain what is the stock market. When people hear words stock market, mostly they will imagine wall street and everything what belongs to it. But these things are only outside aspects of the stock market. Simply said, the stock market is a huge crowd of people willing to trade with stocks. In order to work, in the stock market there must be market participants willing to trade. Buyers stand for demand and sellers stand for supply.

The price of any stock is created by relationship between supply and demand, by market participants willing to buy or sell at a certain price. If demand surpasses supply, price should rise. If supply surpasses demand, price should fall. This economic principle applies to every market.

Buyers are buying because they assume that prices will rise. Sellers are selling because they suppose that prices will go down. They are in an agreement on price, but are in disagreement about future value. There is a lot of aspects that influence price movement and their weight is relative because every purchase or sale is expression of individual opinion. One from factors that influence current price of stock is news or information about company or industry sector or the whole economy. The health of the economy has a big influence on share prices because it's important for driving company profits. If good news comes out on a company, the price and demand for the stock mostly rise. When bad news occurs, the price and demand mostly go down. Next aspects are earnings and profit of company, cash-flow, management of company and other information regarding to performance of company , and generally there is countless amount of other components that influence behavior of market participants.

Why do companies go public? There is one main simple benefit and that's money. When company offers their shares through the stock exchange via IPO, what stands for Initial Public Offering, company can obtain more capital by selling its shares. However it has some negative characteristics. For example, company has some new accounting obligations and must make regularly some public reports about the company.

On the present stock market is very organised and coordinated by computers in stock exchanges. Barriers for entry into the stock market for common people are relatively low and stock trading is becoming still more popular.

If you want to learn more about the stock market and stock trading you can check out this Trading Guide.