A stock market is a place where investors go online to buy and sell investments – most commonly stocks, which are ownership shares in a public company.
What Is the Stock Market?
The term stock market refers to a number of exchanges in which shares of listed companies are bought and sold. These financial activities are carried out through official exchanges and through over-the-counter (OTC) markets that operate within a certain set of regulations.
The terms “stock exchange” and “stock exchange” are often used interchangeably. Stock traders buy or sell stocks on one or more stock exchanges that are part of the overall stock exchange.
Understanding the Stock Market
The stock market allows buyers and sellers of securities to meet, interact and trade. The market provides insight into a company’s share price and serves as a barometer for the economy as a whole. Buyers and sellers are assured of fair prices, high levels of liquidity, and transparency as market participants compete in the open market.
The first stock exchange was the London Stock Exchange, which began in a coffee shop where merchants met to exchange shares, in 1773.
The first stock market in the United States began in Philadelphia in 1790.
The Buttonwood Agreement, so named because it was signed under the button, marked the beginning of Wall Street in New York in 1792. The agreement was signed by 24 merchants and was the first organization. The United States falls into this category of securities trading. Traders renamed their business to the New York Securities and Exchange Board in 1817.
Capital exchange is a regulated and controlled environment. Moreover, in the United States, the main regulators are the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). 2
Stock exchanges soon issued and traded paper physical stock certificates. Today, the stock market operates electronically.
How does the Stock Market work?
The stock market provides a safe and regulated environment in which exchange participants can confidently trade stocks and other qualified financial instruments, with zero operational risk. to low. However, operating under the rules set forth by the regulator, the stock exchange operates as a primary market and a secondary one.
As a primary exchange market, the capital exchange allows companies to issue and sell their shares to the public for the first time through an initial public offering (IPO) process. This activity helps companies to raise necessary capital from investors.
A company divides into many shares and sells some of these shares to the public at a price per share. To facilitate this process, a company needs a market where these shares can be sold and this is achieved through the capital market. A listed company may also offer new shares through other services at a later stage, such as rights issues or follow-up services. They can even buy back or delete their shares.
Investors hold shares of the company with the expectation that the value of the shares will increase or that they will receive a dividend or both. The capital Exchange acts as a facilitator in this fundraising process and receives compensation for its services from the company and its financial partners. Moreover, using a stock exchange, investors can also buy and sell securities they already own on the secondary market.
The stock market or exchange that maintains market- and industry-specific indexes, such as the S&P (Standard & Poor’s) 500 Index and Nasdaq 100 Index, provides a yardstick to track overall market movement.
The stock market ensures price transparency, liquidity, price discovery, and fair dealing in trading activities. The capital exchange ensures all interested market participants have access to data for all buy and sell orders, thus contributing to fair and transparent pricing of securities. The market also ensures efficient matching of buy and sell orders.
The stock market must support price discovery in which the price of any capital is collectively determined by all its buyers and sellers. Indeed, those who are qualified and willing to trade will have immediate access to place orders. And the market ensures that orders are executed at the right price.
Traders in the stock exchange include investors, traders, speculators, and hedgers. An investor can buy stocks and hold them for long periods of time. While a trader can enter and exit a position in seconds. A market maker provides the necessary liquidity in the market, while an underwriter can trade derivatives.
How Stock Exchanges Are Regulated
Most countries have a stock market and each local financial regulator or monetary regulator or institute regulates it. The SEC is the regulatory body responsible for overseeing the US stock market.
The SEC is a federal agency that operates independently of the government and is free from political pressure. However, the SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation”.
Publicly traded companies are regulated and their trading is monitored by the SEC. In addition, stock exchanges establish certain requirements. Such as timely submission of quarterly financial statements. And instant reporting of relevant company developments, to ensure that all market participants get information in the same way. Failure to comply with the regulations may result in business suspension and other disciplinary action.