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 NYSE or New York Stock Exchange; unlike the NASDAQ they use floor traders to make the trades. It is managed by a group of directors who are responsible for the conduct of their members; overseeing and setting the procedures and policies of the NYSE.
The AMEX stock market, which stands for American Stock Exchange, is the third largest stock exchange based on its trading volume in the United States. AMEX handles 10% of the securities that are traded in the United States.
Another function of stock exchanges is "Over the Counter Markets" or OTC. This is the trade in stocks and shares; some time called equity markets. This is mostly the listing of small companies and their stocks. There are two OTC exchanges they are Over the Counter Bulletin Board, OTCBB, and the Pink Sheets. When companies are dropped by the larger exchanges their stocks nearly always move on to these exchanges.
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.
A dividend is a payment of part of the company's profits; this is decided on by the board of directors. The set the level of divided to be paid out per share; the more shares owned the more return the investor receives.
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.
A stock market can offer an investor 2 types of shares they are called Common and Preferred shares. As the name indicates the common share has little preference attached to it by the company. For example if the company you own common shares in becomes bankrupt or liquidate their assets you are the not going to receive any money until creditors and the preferred share holders are paid. You can see that owning preferred stock gives this option; however you do not get voting rights with preferred stock.
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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