Introduction- Infinite Negotiations


Introduction to Financial Markets

Think about all the modern luxuries and necessities. Toothpaste, cars, credit card, and the screen on which you are reading this. They all are invisibly linked together by the Financial Markets in a very fundamental way. (Most direct connection being the company producing them is listed on a major stock exchange)

Consider chocolates. Even a seemingly small chocolate bar needs shelves where they are kept, transportation, sourcing of raw materials, equipment producing the final product, and of course your favorite celebrity in a slick commercial, etc. All of this costs $$.

When you buy the chocolate bar, cash gets exchanged over many hands. Your individual small purchase can be thought of as a small puddle of "economic activity". The store selling chocolates sells other things as well, making it a small stream of economic activity. Similarly, a large company can be considered a river.

But here is more to this story! These invisible finance streams don't flow by themselves. They need a fair value to attract us so that in return we could make them flow. Sometimes it is pre-decided by the maker for the sake of convenience. Other times you can haggle, or choose something/ sometime else.

Going by this logic: Financial markets are the vast oceans of economic activity, where many big rivers terminate. There is a never-ending negotiation over the value of the listed entities (Supply/Demand!). And when you decide to buy/sell, you've joined this negotiation. You will negotiate based on the information you have, and the information is derived from all those "economic activity" sources we discussed.

The one thing similar between Salman Khan's relationship status and Financial markets is: they both are complicated.