[2022] What Is the Stock Market? and It’s Types

What Is the Stock Market?

The stock market broadly refers to the collection of exchanges and other venues where the buying, selling, and issuance of shares of publicly held companies take place. Such financial activities are conducted through institutionalized formal exchanges (whether physical or electronic) or via over-the-counter (OTC) marketplaces that operate under a defined set of regulations.

While both the terms “stock market” and “stock exchange” are often used interchangeably, the latter term generally comprises a subset of the former. If one trades in the stock market, it means txhat they buy or sell shares on one (or more) of the stock exchange(s) that are part of the overall stock market. A given country or region may have one or more exchanges comprising their stock market. The leading U.S. stock exchanges include the New York Stock Exchange (NYSE) and the Nasdaq. These leading national exchanges, along with several other exchanges operating in the country, form the stock market of the United States.

Understanding the Stock Market

The stock market allows numerous buyers and sellers of securities to meet, interact, and transact. Stock markets allow for price discovery for shares of corporations and serve as a barometer for the overall economy. Since the number of stock market participants is huge, one can often be assured of a fair price and a high degree of liquidity as various market participants compete with one another for the best price.

A stock market is a regulated and controlled environment. In the United States, the main regulators include the Securities and Exchange Commission (SEC) and market participants under the purview of the Financial Industry Regulatory Authority (FINRA).21 Since the stock market brings together hundreds of thousands of market participants who wish to buy and sell shares, it ensures fair pricing practices and transparency in transactions. While earlier stock markets used to issue and deal in paper-based physical share certificates, the modern-day computerized stock markets operate electronically.

How Many Types of Shares are There?

Shares can be of many types and different people define them differently. But we can mainly divide the share into 3 forms. Let us know the types of share :-

1. Common Shares – Any person can buy these. And can sell when needed. These are the most common types of shares.

2. Bonus Shares – When a company makes good profits and that company wants to give some part of it to its shareholders. Instead, she does not want to give money and if she gives shares, it is called bonus share.

3. Preferred Shares – This share is brought by the company only for certain people. When a company needs money and wants to raise some money from the market, then the shares it will issue will give the first right to buy them only to certain people. Like employees working in a company. Such shares are considered very safe.

How to Buy Stocks?

To buy stocks, first you have to decide whether you would like to buy stocks yourself or take the help of a broker. Only then can you move forward.

If you take the help of a broker, then first you have to open your account. Which is called Demat account. Which you can open through your broker. There is a lot of benefit in buying a stall through a broker, one, you will get good guidance and secondly you will get complete knowledge of the stock market. Brokers take money or share of profits in stock to help you and stock information etc.

There are only 2 stock exchanges in India. NSE and other BSE . Stocks can be bought or sold only in companies that are listed in them.

Whenever you buy a share, its money comes in your demat account only, your demat account is linked with your bank account. You can easily send money from your demat account to your bank account.

If you want to invest your money in Share Market, then you can create your account on Discount Broker “ Zerodha ”. In this very soon and easily you can open Demat Account and buy shares in it. Its link is given below.

How the Stock Market Works

In a nutshell, stock markets provide a secure and regulated environment where market participants can transact in shares and other eligible financial instruments with confidence, with zero to low operational risk. Operating under the defined rules as stated by the regulator, the stock markets act as primary markets and secondary markets.

As a primary market, the stock market allows companies to issue and sell their shares to the common public for the first time through the process of an initial public offering (IPO). This activity helps companies raise necessary capital from investors. It essentially means that a company divides itself into a number of shares (for example, 20 million shares) and sells a part of those shares (say, 5 million shares) to the public at a price (for instance, $10 per share).

To facilitate this process, a company needs a marketplace where these shares can be sold. This marketplace is provided by the stock market. If everything goes according to plan, then the company will successfully sell the 5 million shares at a price of $10 per share and collect $50 million worth of funds. Investors will get the company shares, which they can expect to hold for their preferred duration, in anticipation of rising in share price and any potential income in the form of dividend payments. The stock exchange acts as a facilitator for this capital-raising process and receives a fee for its services from the company and its financial partners.

Significance of the Stock Market

The stock market is one of the most vital components of a free-market economy. It allows companies to raise money by offering stock shares and corporate bonds. It lets common investors participate in the financial achievements of the companies, make profits through capital gains, and earn money through dividends—although losses are also possible. While institutional investors and professional money managers do enjoy some privileges owing to their deep pockets, better knowledge, and higher risk-taking abilities, the stock market attempts to offer a level playing field to common individuals.

The stock market works as a platform through which savings and investments of individuals are efficiently channeled into productive investment opportunities. In the long term, this helps in capital formation and economic growth for the country.

Examples of Stock Markets

The first stock market in the world was the London Stock Exchange. It was started in a coffeehouse, where traders used to meet to exchange shares, in 1773.6 The first stock exchange in the United States was started in Philadelphia in 1790.7 The Buttonwood Agreement, so named because it was signed under a buttonwood tree, marked the beginnings of New York’s Wall Street in 1792. The agreement was signed by 24 traders and was the first American organization of its kind to trade in securities. The traders renamed their venture as the New York Stock and Exchange Board in 1817.

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