Have you been reading one of those “rags to riches stories” involving the stock market? You are convinced to try your hand at a stock exchange but are at sea when it comes to stock markets and do not know where to begin? So what is stock market? According to the dictionary, a stock exchange is where all stocks are bought and exchanged under the frame of a definite set of rules or a place where the stockbrokers gather to exchange bonds and securities.
People involved with stock markets can be broadly classified as buyers and sellers. In a typical exchange stocks, commodities, bonds, options and futures are traded. Each exchange imposes its own set of rules and regulations for brokers as well as firms involved in trading. Any company that wants its stocks to be traded on an exchange has to fulfill requirements laid down by the exchange. If you can buy and sell shares of a particular company in an exchange it is termed as a “listed” company. Companies that do not fulfill the requirement to be listed on a stock exchange are traded over the counter. Dealing in such companies can be riskier than the listed companies. With this basic understanding of “what is stock market” we shall find out some of the existing stock exchanges.
The top ten existing stock exchanges in the world as per the information provided by World Federation of Exchanges are NYE (New York Stock Exchange), Tokyo Stock Exchange, NASDAQ Stock Exchange (National Association of Securities Dealers Automated Quotations), Euronext (born as a result of merger of Bourse de Paris, Brussels Stock Exchange and Amsterdam Stock Exchange in 2000), Frankfurt Stock Exchange, Toronto Stock Exchange, Hong Kong stock Exchange, Shanghai Stock Exchange, London Stock Exchange and Madrid Stock Exchange. Having found out the names of few of the biggest stock exchanges let us try to find out what is stock exchange history.
The modern form of stock exchanges developed in the last few centuries. Though scholars do not confirm to an exact date for the beginning of securities exchange, some believe that the Mesopotamian clay tablets are the earliest records of interest-bearing loans. The actual beginning of trading is considered to have started at Amsterdam in 1602, when Dutch East India Company came into being as a joint-stock company with readily tradable shares. It marks the beginning of the legend of what’s stock exchange history. Though Amsterdam Stock Exchange does not exist anymore, it is considered to be the oldest stock exchange of the world. In September, 2000 it was merged with Paris Stock Exchange and Brussels Stock exchange to form Euronext. It is now well known by the name of Amsterdam Euronext.
As we have come to know what stock market stands for, we will now consider why companies get themselves listed with stock exchange for us. We all know that any business, whether small or big, requires capital to start its operations. Any start-up venture or a company that wants to expand obviously requires money to do so. There are two ways to raise capital, one is to borrow money (debt financing) or sell shares. The disadvantage of debt financing is that a company has to repay the loan along with the interest accrued on the principal sum. Selling shares is a more positive and less risky method of raising capital for the founders of a company. By selling share(s) of stock, a company allows entitlement to its assets as well as profits to the share holder. The profits of a company are distributed amongst the investor(s) that is you, as a price rise in its shares; however, if a company incurs losses, they too get distributed and usually result in loss of share value. This sharing of loss policy through the stocks reduces the risk factor for any one investor and the company is happy to share its profits otherwise.
However, it takes years of experience and knowledge before one learns the intricacies of stock market. But the good thing is that you do not have to spend years learning about trading in shares as there are a large number of brokers and firms who can invest money for you. Also, technology has made it much easier for people to trade in stocks. Perhaps, you can open a dummy account with one of the share broking firms online to learn more of stock market working. Or else it is best to pay a small fee for professional help, set the ball rolling in stock markets and yield profits!