How Does A Stock Exchange Function?

Stock Market

Published on December 23rd, 2018

Stocks or stock markets are creating a lot of buzzes. But do you know what a stock is and how it functions?

A stock simply put is an ownership share of companies that are publicly-traded and traded on the stock exchange. Securities are common stocks sold to the people which comprise an ownership stake within a corporation.

It is available in every size which means you have the flexibility to invest in a micro-cap, small company which has the potential for profit or in a global, large company such as IBM.


1. Brief On Stock Market

Mistakes Stock Market Investors

There is not just one stock market, but there are multiple the world over. Of these, the top ones include the LSE (London Stock Exchange), Nasdaq and NYSE (New York Stock Exchange). A stock market is a public trading venue which allows investors of every stripe in buying, selling and issuing stocks on an exchange and/or through OTC (over the counter) trading. In the latter, it is a market that is decentralized which means there is no central physical location.

Here trading is done through different communication modes like email, phone, and the proprietary electronic trading system. To buy stock shares on the stock exchange, the investors need to go via the brokers, who are intermediaries trained and skilled in stock trading. They can get stock to an investor at a fair cost within a moment’s notice.

The investor informs the broker regarding the stock they desire, the number of shares required and at a usual price range. It is known as a bid. Learn more at Seeking Alpha – Philip Davis sessions.


2. Different Types Of Stocks

Stocks are of different types, but of these, the most common and pervasive include preferred and common stocks. Let’s delve a little deeper into each,

  • Common Stocks- This is a standard stock form. A share of this stock provides a share stock to the shareholder and a vote at the event of the company shareholder. Along with benefitting from an increase in value, the stockholder is likely to be eligible to get dividend payments especially from the organization from which they own the stock. Better established and larger organizations will pay higher dividends because compared to growing, new companies have higher assets on hand.
  • Preferred Stocks- This is a type of ownership within an organization that usually has priority over the common stockholders with regards to assets and earnings during liquidation. Should the organization goes bankrupt, the dividends of preferred stock will be paid after the organization’s debt yet prior dividends on the organization’s common stock.


3. A Brief On Dividend-Producing Stocks

Stock Market

Stocks in a general rise in value through an increase in price and generate income in the likes of dividends. The dividends are profits that an organization earns which it gives to the shareholders. The dividend can either be decreased or increased as deemed fit by the company.

Any investor for that matter will buy stocks for making a profit. But here there are other reasons to such as make money, earn dividend payments, gain influence in an organization, outflank inflation and save for long-term financial objectives such as retirement. If you are interested to know more join hands with an expert in this domain and make the most of it.