The World of Stock Market

NYSE, NASDAQ, Amex, Paris Bourse, Deutsche Borse, London Stock Exchange are just a few of the highly observed and traded stock exchanges in the world. The size of the global stock market is approximately $51 trillion. While the derivatives market is estimated to be worth roughly $480 trillion or 12 times the value of the world economy. No wonder why the stock market plays a big role in defining the financial institution of every nation.

The Dutch East India Company was the first company to issue stock and bonds. In 1602, it issued the first shares on the Amsterdam Stock Exchange. Also known as Amsterdam Beurs, the Amsterdam Stock Exchange is believed to have been the first stock exchange to establish a continuous trading during the early 17th century. The Dutch initiated option trading, short selling, debt-equity exchanges, unit trusts, merchant banking and other speculative instruments; according to the London Review of Books of 2001.

Below are the very basic of stock trading, what is it all about? Who are the parties involved in buying and selling stocks? How does it work? And how does it affect the economy? Read on and you will learn the core of stock market…

What
A stock market, also known as equity market, is either a public or private market in which company stocks and derivates are traded at an agreed price. The stocks are traded on a stock exchange, a specialized mutual organization that brings sellers and buyers of stocks and securities together.

Who
In the past, only wealthy investors and businessmen with long family affiliations to particular corporations are interested in the stock market. Nowadays, buyers and sellers in the stock market can be individual investors, insurance companies, banks, mutual funds, investor groups, and hedge funds. The growth of institutional investor also provided some improvements on the stock market.

Where
The trading of buyers and sellers can be physically or virtually. A sample of physical exchange, also referred to as listed exchange, is the New York Stock Exchange (NYSE) where transactions are accomplished on a trading floor. The NASDAQ on the other hand is a virtual exchange where trades are done electronically or via a network of computers.

How
Stock trading involves a potential buyer bidding a definite price for a stock and a potential seller asks a specific price for the stock. When the bid and ask prices match, then a sales occurs on a first come first served basis in case there were several askers or bidders at a given stock price. In a physical stock exchange like the NYSE, commodity exchanges are traded and bided verbally on a trading floor. This procedure of verbal bidding is called outcry. While virtual listed exchange like NASDAQ matches potential buyers and sellers electronically.

Why
Apparently, the stock market is one of the most essential sources for companies to raise fund. Also, the liquidity of stock trading provides investors the ability to sell securities easily and quickly. Though the behavior of stock market is still quite surprising and unpredictable to many, there has been a significant increase in shift of household financial assets from traditional bank deposits to the more risky securities of stock market.