Stock Market

Stock Market
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A stock market is a market where stocks (shares), bonds and other securities are bought and sold. The trading takes place in a stock exchange or the stocks can be traded privately with some arrangement.

Shares of stocks in companies, corporations and governments and other securities are bought and sold by stockbrokers on behalf of investors for a fee or commission. The stocks may be listed on the stock exchange and sold by auction or they may be traded privately over-the-counter. The investors range from small individual investors to large investors known as institutional investors who include corporations, trusts, mutual fund firms, retirement schemes, insurance companies and others.

Companies sell shares through an initial public offering IPO to the public and investors buy these shares usually at discounted prices. This is the way businesses raise money for expansion or pay debts. The companies issue existing shares in the company to the public. When investors buy the shares they own part of the company and are known as shareholders. They buy shares hoping to gain from the company by earning dividends. They are sent statements and reports periodically. The shareholders who are a mixture of small investors and institutional investors have voting rights in the company and vote on decisions made by the company which include voting directors and other management issues.

Most of the securities traded in the stock market are listed stocks and bonds. These change hands every day except during weekends and public holidays. Stock exchanges facilitate buying and selling of listed shares and bonds through stock brokers who trade on behalf of shareholders. The trading is usually done by auction on the trading floor. The buyer and seller bid and ask until they tie. When the bid price equals the ask price that becomes a sale. The stock exchange gives a guarantee that the buyer will pay the price to the seller through the exchange.

Investors make money when they earn dividends. These are profits distributed to shareholders. Other profits may be retained for expansion. Investors also make money by selling shares at higher prices than the buying prices. These are known as capital gains. Individuals make profits when the mutual funds, retirement schemes etc. in which they have invested in, receive dividends and capital gains. 

Today, many of the stock exchanges are operated electronically through a network of computers which have the trading systems. The buyer sends their orders electronically and the trading is done online. Investment banks offer stocks by private arrangements to hedge funds and other institutional investors without revealing the information. There are people who buy shares expecting the prices will go up and they will be able to sell and earn a profit. These are known as speculative buyers.

When the prices are going up, the stock market is bullish. When prices are declining the stock market is  bearish. When the prices fall suddenly during a recession or a depression it is known as a stock market crash.   

Last modified onTuesday, 02 April 2013 23:40
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