Understanding the Stock Market: Crashes, Trends & How It Works

Understanding the Stock Market: Crashes, Trends & How It Works (2025 Guide)
The stock market can seem complex, but it plays a key role in the global economy and individual finances. This guide explains what the stock market is, how it functions, and how it has evolved over time. From historical crashes to today’s global indices, we explore it all, without any investment advice.
Overview of the stock market, how it works and who participates

What Is the Stock Market?

The stock market is where shares of publicly listed companies are bought and sold. These exchanges facilitate investment and raise capital for businesses.
How Shares Are Bought and Sold
Shares represent ownership in a company. People buy and sell them through exchanges such as the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE). These markets operate during set trading hours and are supported by brokers and digital platforms.
What Drives Market Movements?
Prices move based on supply and demand, which are influenced by:

• Company earnings
• Economic indicators
• Interest rates
• Political events
• Global news

Diagram showing factors that influence share prices in the stock market

Key Historical Market Crashes

Understanding past downturns can offer perspective when markets become volatile.
The Wall Street Crash of 1929
This event triggered the Great Depression, beginning with Black Tuesday on 29 October 1929. Share prices plummeted after years of speculation and excessive debt.
Black Monday – 1987’s Global Shock
On 19 October 1987, markets saw their largest one-day percentage drop. The Dow Jones Industrial Average (DJIA) fell by over 22%. Factors included computerised trading and investor panic.
Other Notable Downturns

Dotcom Bubble (2000–2002): Tech stock collapse

2008 Financial Crisis: Triggered by the US housing market crash

COVID-19 (2020): Sudden drop due to pandemic uncertainty

Major stock market crashes from 1929 to 2020 compared by cause and severity

Understanding Modern Stock Markets

Modern markets are digital, global, and often influenced by real-time events.
Major Indices: FTSE 100, DJIA, S&P 500, Nikkei
Stock market indices track groups of companies:

• FTSE 100 – Top UK firms
• DJIA – 30 leading US companies
• S&P 500 – Broader US market
• Nikkei 225 – Japan’s top stocks

These benchmarks help investors understand market performance.
Technology & Global Events
Digital trading, algorithmic models, and exchange-traded funds (ETFs) have transformed how markets operate. Global events, like elections or conflicts can create sharp, immediate movements.

How to Stay Informed Without Speculating

Following Market News Responsibly
Staying informed is useful, but reacting to every headline may lead to rash decisions. Look for reputable news from sources authorised by Financial Conduct Authority (FCA).
Recognising Hype vs Historical Perspective
When media coverage intensifies, it helps to step back and compare the current situation with historical patterns.
Why Past Performance Isn’t a Predictor of Future Results
Markets change. Just because a trend happened before doesn’t mean it will again. This is why past results should never be seen as guarantees.

FAQs – Quick Answers

When did the stock market begin?
The Amsterdam Stock Exchange, founded in 1602, is considered the first formal stock market.

What is a stock market crash?
A crash is a sudden and dramatic drop in share prices, often caused by panic or economic shifts.

What caused the 1929 stock market crash?
Over-speculation, poor regulation and mass borrowing were key factors.

What was the highest stock market level ever recorded?
The Dow Jones Industrial Average (DJIA) reached an all-time high of 40,077 in May 2024.

How do today’s markets compare to historical ones?
Today’s markets are faster, more regulated, and digitally accessible, but still susceptible to global risks.

Want to Learn More About the Markets?

Sign up for market updates from providers authorised by Financial Conduct Authority (FCA)

Track indices like the Financial Times Stock Exchange 100 Index (FTSE 100) and Dow Jones Industrial Average (DJIA)

Use educational tools to expand your knowledge—no trading required

Explore ISA Options with Confidence

• Compare ISA providers authorised by Financial Conduct Authority (FCA)

• Understand fee structures

• Read all terms and conditions before opening or transferring accounts

Looking Beyond Your ISA?

Once the ISA allowance is used, some savers explore General Investment Accounts (GIAs), though they lack the tax-free benefits.

Why Choose Zomi Wealth?

• Authorised and regulated by Financial Conduct Authority (FCA)
• Transparent fee structure
• Tools and education for all experience levels
• No financial advice, just information to help you make informed decisions

Sources:

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