What is Stock Market?
The stock market is a place for investors to buy and sell stocks. It is a place where people can buy and sell stocks. Its efficient operation is very important to economic development.
Purposes of Stock Market
The stock
market serves two important purposes. One is to provide companies with capital
to fund their expansion and the other is to allow them to borrow money without
paying interest charges.
The
secondary purpose of the stock market is to give investors the opportunity to
profit from the companies’ profits. There are two ways to profit from stocks:
buy stocks and sell them for a profit.
What are shares?
A share
is a way to get ownership of a portion of a company's value. For instance, if
you own 2% of the company's shares, then you have 2% ownership in the whole
company.
A share
is a unit of ownership in a company. After buying them, you will become a
stockholder and a stakeholder of the company.
Why do companies
need shares?
When a
company is scaling up, it will need more capital to expand its operations. This
is also the time when a company can raise capital through the share market.
When the value of a company's shares rises, the investors' shares become more valuable. They are not creditors though and thus can borrow money from the company.
How Stocks are Traded
Most
stocks are traded on the New York Stock Exchange or the NASDAQ. Stock exchanges
are regulated by various government agencies to ensure the safety of investors.
Although
the majority of stocks are traded on the exchanges, some stocks are also traded
over-the-counter, where the buyers and sellers of these stocks typically use a
dealer or market maker.
Unlike
stocks listed on exchanges, over-the-counter stocks are not subject to the
public reporting regulations of the US Securities and Exchange Commission. This
means that investors may not get reliable information about the companies
issuing these stocks.
How
Stock Exchanges Make Money
Stock
exchanges are for-profit organizations that charge a fee for their services,
usually for each trade carried out on their platform. These units earn revenue
from various sources, such as the fees charged for various transactions.
The
exchange also makes money from the sales of its market data, which are vital
for investors and other uses.
The
exchange may offer high-frequency trading services to its larger clients, such
as mutual funds and asset management firms. It also has various other sources
of income.
Examples
of Stock Markets
The
London Stock Exchange was the first stock market to open in the world in 1773,
when traders used to meet in a coffeehouse. The Buttonwood agreement, which was
signed by 24 traders, marked the beginning of New York's financial industry. It
was the first American organization to trade securities.
Competition
for Stock Markets
Dark
Pools:
Dark pools are becoming more prevalent as they pose a threat to the operation
of public stock markets. Although their legal validity is not yet clear, they
are typically cheaper than traditional platforms.
Blockchains: A number of crypto exchanges
have emerged in the wake of the rise of blockchains. These platforms are used
for the trading of cryptocurrencies and derivatives. Automated platforms are
becoming more prevalent in the stock market. They can help minimize manual work
and lower costs by providing zero-cost services.
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