Investors and security issuers both participate in stock markets. Different sized entities participate in stock market activities, ranging from small investors to the governments, corporations, large hedge fund traders, and banks. Corporations, governments, and companies issue securities on the stock market to collect funds.
The stock market acts as a platform for companies to raise money for their business and investors to invest in securities.When both the buyers and sellers in stock markets are institutions, rather than individuals, the stock market principle is more institutionalized. The emergence of this institutional investor concept has brought some improvements to stock market operations around the world.
Stock markets can exist in both real and virtual arenas. Stock exchanges with physical locations carry out stock trading on trading floor. This method of conducting trading, where the traders enter verbal bids, is called open outcry.
In virtual stock exchanges, trading is done online by traders who are connected to each other by a network of computers.In addition to acting as a market place for stock trading, stock markets also act as the clearinghouse for stock transactions.
This means that stock exchanges collect and deliver the securities and also guarantee payment to the seller.
This ensures both the buyers and sellers of securities that their counterparts will not default on the transaction.
Stock markets in various countries around the world have performed well due to financial sector reforms and integration. International flow of funds has raised the expertise of stock exchanges in the respective countries.
The market in which shares of publicly held companies are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership in the company. The stock market makes it possible to grow small initial sums of money into large ones, and to become wealthy without taking the risk of starting a business or making the sacrifices that often accompany a high-paying career.
The stock market lets investors participate in the financial achievements of the companies whose shares they hold. When companies are profitable, stock market investors make money through the dividends the companies pay out and by selling appreciated stocks at a profit called a capital gain. The downside is that investors can lose money if the companies whose stocks they hold lose money, the stocks' prices goes down and the investor sells the stocks at a loss.
The stock market can be split into two main sections: the primary market and the secondary market. The primary market is where new issues are first sold through initial public offerings. Institutional investors typically purchase most of these shares from investment banks. All subsequent trading goes on in the secondary market where participants include both institutional and individual investors.
Stocks are traded through exchanges. The two biggest stock exchanges in the United States are the New York Stock Exchange, founded in 1792, and the Nasdaq, founded in 1971. Today, most stock market trades are executed electronically, and even the stocks themselves are almost always held in electronic form, not as physical certificates.