I’m sure almost everyone reading this has, at some point, watched BNN or have seen the closing numbers of the Dow Jones Industrial Average (“DJIA”), the S&P 500, and/or the TSX Composite. These are all representations of markets, or at least, a small part of much larger markets. The one that seems to get the most attention is the DJIA. However, this index only represents the 30 large companies that trade on the US stock markets. That is it…just 30 names.
The S&P 500 aims to track the 500 largest companies that trade on the US market. Seems like a lot right? Well, every day there are actually 3,600 publicly listed companies that trade on different exchanges in the US alone. This doesn’t include private companies or companies that trade over-the-counter (not listed on an exchange).
The stock market is an auction market where buyers and sellers meet and agree on a price. This is the first thing that must be accomplished in order for a trade to occur. So anytime you hear somebody say something like “there were more sellers than buyers in the market so the market went down in price” you know that this just can’t be true. There has to be a buyer for every seller or a transaction just can’t happen! Now one side might be more motivated so they may be willing to accept less or pay more… but there must always be a buyer and a seller.
Stay happy, stay safe, stay well!
-The CM Group