A private or public market where stocks and derivatives of various companies are traded is called a stock or equity market. The traders range from individuals to large corporate houses and hedge fund traders. The stock market operates either physically, where traders make offers verbally or as the version we are all familiar with virtual. Trading happens online over computers and this innovation is what has pulled many individual traders to stock markets.

Trading works on the simple principle of auction. Buyers bid a price and sellers ask a price. If the prices match, a sale dead happens on a first come first serve basis. The purpose of having a stock market is to allow trading of securities of companies that are listed in the market.

The recent economic downturn has proved to be a loss for many who had invested in the stock market. What makes the stock market rise or fall? There are many factors which affects the stock market. Some of them are inflation, political scenario, oil prices and interest rates. The change in any of these factors drives the market up or down. Regardless of the factors that affect the market, the stock prices are ultimately decided by how much a buyer is willing to spend.
Inflation is one the major influencers of the market. Most governments intervene when inflation soars too much. The intervention is in the form of hiking the interest rates. Once the interest rate goes up, short term borrowing becomes more expensive. This means that a buyer has less money to offer. This in turn leads to a reduction in prices that a seller will fix.
Of all the factors that affect the market, one factor that makes the market rise or fall unpredictably is uncertainty. When there is speculation about change in governance or speculation about a government policy, the market rattles. It can take no surprises and the oscillation of prices is too much.

When the economy was not so much liberalized, what changed the stock prices was only the balance sheet of companies. Even today, a wise investor will analyze company balance sheet and long term policies before investing in a company stock. But with liberalized economic policies and plenty or surplus cash, markets have been driven up by excessive optimism and pulled down by pessimism.

Lot of research has been done to understand the rise and fall of market but none have been able to really predict where the market will go. One such research has compared the stock market to a gambling game. A large proportion of the market happenings are dependent on the psychological trends of the investors.

The stock market has also been known to react very irrationally to economic scenarios. Though the impact of certain economic factors is not much on the actual value of the securities, the effect of such economic news has been huge on the prices of stocks. Stock market is also known to sway according to human emotions. A terrorist attack on Mumbai had brought down the stock prices.

The movements of the stock market are captured in a figure called the stock market index. The index as a whole tells you how the stock market is doing or where it is poised to go. The index is a derivation the weighted market capitalization of certain stocks listed in a particular stock market. The stocks are selected in such a manner as to reflect the performance of various industries and sectors. These stocks are also constantly reviewed and some additions and deletions are made periodically.

Whatever pulls up or down the stock market, it has an impact on our day to day lives. All walks of life are affected by changes in the stock market grocery prices, oil prices and other cost of buying are all affected.