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What is A Stock Market and How Does It Work?

What is A Stock Market and How Does It Work?

What is a stock market? A stock market is where shares of stocks are sold and bought (traded) for public companies that belong to the various stock markets or exchanges around the globe.

Funding

funding

Large companies or corporations raise money for expanding or to replace money spent when a company is starting up. Startups working with a brokerage firm will divide the company into a large amount of shares at an initial opening price. This is known as an IPO or initial public opening. Selling stocks to raise money is usually referred to as ‘equity financing’.

Advantages of Stock Markets

stock-advantage

The advantage to selling stock to make money is that the company can get money with very little strings being attached. For example there is no interest to pay back and actually there is no rule they requires the money to ever be paid back. Equity financing takes the risk out of losing. If the company is a failure the founders do not lose all their money instead all the stockholders lose their smaller amounts of money they have invested. On the other hand, if the company is doing well, the net earnings are divided between all the stockholders in the form of dividends.

Using a Stockbroker

stock-broker

An example of a stock market or stock exchange is the New York Stock Exchange or NYSE. A stockbroker or firm working for you for a small fee will go to the NYSE and buy or sale stocks for you with companies that belong to NYSE or companies belonging to other stock market such as the London Stock Exchange. Years and years ago, the stockbroker working for you had to go to the floor of the exchange or had someone in New York go there for them but now every order for buy or sell is transmitted digitally.

Purposes

nasdaq

Other stock exchanges in the US are the NASDAQ or the National Association of Securities Dealers and the AMEX or American Stock Exchange. Since companies need to meet exact requirements in order to be a part of any stock market or exchange they look to be less risky as compared to companies that are sold OTC or over the counter and not listed on any stock markets.

Top 10 Stock Markets Globally

The top ten stock markets in the world by market capitalization include:

  • NYSE is the New York Stock Exchange – located in New York City – 8000 companies
  • NASDAQ OMX – New York City – 3400 companies
  • Tokyo Stock Exchange – Tokyo – 2292 companies
  • London Stock Exchange – London – 3000 companies
  • Shanghai Stock Exchange – Shanghai
  • Hong Kong Stock Exchange – Hong Kong – 1477 companies
  • Toronto Stock Exchange – Toronto – third largest in North America
  • BM&F Bovespa – Sao Paul – 381 companies
  • Australian Securities Exchange – Sydney – combined Australian Stock Exchange and Sydney Futures
  • Deutsche Borse – Frankfurt – 765 companies

How to Get Stockbroker License

broker-licence

If you have thoughts of being a stockbroker and want to make a living placing buy and sell orders for others for commissions here is what you need to do – get a high school education with emphasis on math, business, and economics. That’s it; surprising isn’t it? Then you need to pass a licensing test called the series 7 exam. This test has 250 questions that are multiple choices and after passing this exam you are considered qualified to solicit, sell and buy all security products.

About Arthur James

Arthur James is a professional writer with years of experience writing articles about business related topics. His articles are helpful to people who want to find out what is a stock market. When he is not busy with writing, he spends most of his time playing with his children.