Shares and Stocks 101 Review Chapter 5-8
A stock market is a public for trading of the company stock at an agreed price. It is considered the fast way to get the money from an individual and give it to the company that needs it.
The concept of stock trading comes from way back in 1600 , when the East India Company was launched, it needed money from the people for their voyages, without any guarantee of return .hence they approached the investors to whom they gave shares in return of the cash.
The idea was that the risk would be shared and divided among the investors, no fixed returns would be paid to them but if company progressed and did well then the investors will be benefited. The idea worked and the investors made profits and by the end of 17th century many more were entering the ball game of trade.
In 1801 the LSE (LONDON STOCK EXCHANGE) was formulated, the systems were formulated and there was no looking back after that. LSE also runs AIM (Alternative investment Market) for the young companies as “starter market “
Today, along with Britain, LSE runs the biggest exchange with 1800 + companies, which is called the “main market “.
WHY DO COMPANIES LIST ON THEM?
Stock Exchange is an organization or a corporation which helps in trading of stocks to investors and stock brokers. The main aim of listing the companies on stock exchange could be
Raising Capital for the businesses
Mobilizing Savings for further Investment and
Facilitating Companies Growth
The biggest and the most prestigious stock exchange is the NYSE ( NEW YORK STOCK EXCHANGE) .NYSE came in existence way back in 1972 , when 24 New York stockbrokers and merchants got together
Sign the Buttonwood Agreement.
NYSE is first exchange of its kind and trades in the open outcry system. Each stock is traded by a specialist (who is the employee of NYSE) on a specific location on the trading floor. This specialist actually works as auctioneer between buyer and the seller in particular stock. This type of trading makes NYSE different from other exchanges which are totally dependent on electronic devices.
Today with changing times half of NYSE is also trading on electronic devices, and is come out of the Stone Age.
The NASDAQ (NATIONAL ASSOCIATION of SECURITIES DEALERS AUTOMATED QUOTATION) is the second type of exchange and the largest electronic screen based trading market of United States of America. The exchange does not have central locations of specialist, neither do they floor trading. The entire trading is done through computers and telecommunications.
The third largest exchange of America is the AMEX (AMERICAN STOCK EXCHANGE), which has been taken over by NASD (parent company of NASDAQ) in 1998.
There are many other stock exchanges around the world. Almost all countries have stock exchanges, with Americas stock exchange being undoubtedly be the largest.
List of other exchanges,
LONDON STOCK EXCHANGE
HONG KONG STOCK EXCHANGE
MUMBAI STOCK EXCHANGE
JOHANNESBURG SECURITIES EXCHANGE
And the list can go on…………
WHAT ARE STOCK INDEXES
A stock market index is a method of measuring a section of stock market. Statistical indicator used in measurement and reporting changes in the market value of group of stocks. By measuring the performance of a one company based on the performance of other companies in the same type of business, which will help the investors to make best investment.
Major types of stock indices:-
There stock indices may classified in many ways.
GLOBAL market index includes all types of companies irrespective of where they are domiciled or traded. The 2 best examples of such index are MSCI WORLD and S&P GLOBAL 100.
NATION market index indicates the performance of a stock exchange of a nation and reflects the economy of the country. The examples of such index are the INDIAN SUNSEX and the JAPANESE NIKKEI 225
More specialized indices comprise of tracking the performance of the certain sector of the market, the example is MORGAN STANLEY BOITECH INDEX, it comprises of 36 American companies under biotechnology industry
Other indexes may track the companies from its size, or a certain type of management etc.
The index can be also classified under the criteria as to how is it priced
PRICE WEIGHTED INDEX also known as equal dollar weighted index, each component stock contributes only to its price when determine the overall value. The size of the company or the volume in which its trading is not taken into considerations, hence evens a slight up or down in a single company highly influences the index
CAPITALIZED WEIGHTED INDEX also known as market value weighted index, whose components are weighted according to the total market value of their outstanding shares. The impact of the component’s price change is proportional to the issues overall market value.
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