What is the Stock Market?
A stock market, also referred to as an equity market, is a public entity or marketplace that is created to expedite the trading of company-issued stock and derivatives.
Shares of stock and derivatives are exchanged between the buyers and sellers who make up a stock market. The shares and derivatives are exchanged between the parties at an agreed price.
Shares of stock are simply certificates that signify a percentage ownership in a particular company. Those who invest in stocks do so in hopes of earning a profit through the underlying company’s business model. Shareholders possess voting rights, typically one vote per every share owned. Public companies (those who issue stock) hold yearly meetings where the shareholders come together to vote on company issues. Additionally, stockholders receive annual or quarterly reports to let shareholder know how the company is doing financially.
When a public corporation wishes to sell shares of its company, it will list its stock on an exchange or stock market. The most commonly used stock exchanges in the United States are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). These exchanges or stock markets were established to make the transactions (buying and selling stock) easier for those parties involved.
Each developed nation possesses its own stock market. Although a number of foreign companies are listed on the NYSE and NASDAQ these international stock markets typically possess stocks which operate abroad.
Participants in the stock market range from small private stock investors to large hedge fund traders. These parties will place an order with a brokerage firm or financial intermediary; once the order is accepted by the intermediary, a professional within the stock exchange will go into the stock market and execute the order.
Some stock markets are physical locations where stock transactions are carried out on a trading floor. The transaction is affirmed through a type of auction, where traders may enter verbal bids and offers simultaneously. The other type of stock market is a virtual marketplace, which is composed of a network of computers. Traders are executed electronically in a virtual marketplace.
The NYSE is a physical exchange, where only those stocks listed on the NYSE can be traded. The purpose of all stock markets, whether tangible or virtual, is to facilitate the exchange of financial securities between buyers and sellers. This expedited process enables both buyers and sellers to observe real-time trading information on the listed securities.
Laws that Regulate the Stock Market
All transactions made on a stock market are regulated and governed by the Securities Exchange Commission. Any fraudulent attempts of buying or selling financial instruments as well as the delivery of min-information with the direct intent to illegitimately accrue a profit will result in investigation and subsequent penalties if found guilty. The typical punishments attached to a fraudulent or illegal maneuver made within the stock market is a termination of the individual’s license, numerous fines and possible jail time.