The Stock Market a simple definition

by

Dave Chandler

What is the stock market? In simple terms it is place where you buy and sell stocks and shares. It is where the trading in securities is managed. It has become a major driver to the market economy as it provides business access to investors and their capitol. The investors risk their capitol for the chance of profit based on the future performance of the companies they invest in. In the USA there are 3 central stock markets some times called stock exchanges.

The NASDAQ or The National Association Of Security Dealers Automated Quotation to give it it’s full name opened in 1971; this was the first exchange to trade electronically anywhere in the world. The NASDAQ is not based anywhere as it is a virtual exchange; there is no trading floor where you will see dealers. It is a network of computers linked together. The second is the New York stock exchange or NYSE. The NYSE corporation is managed and run by a group of directors who are responsible for over seeing their members activity, setting of policies and listing the securities to be traded. The NYSE is unusual as it has “Floor Traders” to make the trades rather than computers as in other exchanges. The AMEX or American stock market is the final one of the big 3 in the USA; it processes approximately 10% of the securities traded in the USA. Stock exchanges also process what is called “over the counter markets” or OTC; this is also know as the Equity Market. These are the listing of small companies stocks. In the USA there are two OTC exchanges; they are the “Pink Sheets” and the “OTCBB” or Over the Counter Bulletin Board. This is where companies who are not traded by the big 3 are managed. The above exchanges allow investors to own stock and shares in publicly traded companies. An investor can make profit from their investment in 2 ways; dividends or capitol gains. Capital gain means that there is an increase in the companies’ capital assets, such as an increase in their real estate value or an investment they have made. Thus in return gives them a higher worth than their original purchase price within the stock market. This will make the value of each share increase including the share or shares that you have bought. Dividends are the distribution of a portion of a company’s earnings. A company’s board of directors decides what class of its shareholders will reap the benefits of their profit. A dividend in the stock market can be in the form of cash, property or stock. Share ownership entitles the investor to make a claim on the assets owned by the company. The investor receives a portion of the company’s profits and dependant on the type of share owned voting rights. Simply the more of the shares owned the more of the company owned and there for the more access to the companies earnings. There are two types of shares that you can purchase from a company through the stock market. The first is the common share and the second is the preferred share. The common share, also known as a common stock is at the bottom of a company’s priority ladder. If the company your invested in through the stock market becomes bankrupt or needs to liquidate their assets, you will not receive any money for your stock until the creditors and preferred shareholders receive theirs. However if you purchase a preferred share through the stock market, also known as a preferred stock, you have top priority to receive money if a company becomes bankrupt or has to liquidate its assets. The downfall to buying a preferred stock through the stock market is that you will not be given any voting rights to a company, which means that you have no say in how the company may conduct business. The stock market is a difficulty animal to understand; it can take a long time to grasp all the little quirks involved. By braking down the different section of the markets and focusing on understanding them individually it becomes much easier to grasp. Do not be daunted and take it a step at a time and you should master the markets.

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The Stock Market a simple definition