A share or stock is a monetary value-based division of a corporation's or company’s entire capital. Share trading involves buying and selling shares of corporations/companies listed in the stock market. The term "stock market" refers to public exchanges in which stockbrokers, traders, buyers, and sellers can trade in thousands of equities of firms listed on the exchange. These companies sell shares of their business, providing the general public the opportunity to invest in them.
What are shares and stocks (aka Equities)?
A share is capital raised by a firm or corporation through the issuance and subscription of shares in financial markets. Simply put, a share is a unit of equity ownership in a company's or corporation's capital. Share capital refers to all of an enterprise's shares, as well as units of mutual funds, limited partnerships, and investments as a trust in the organization with the intention of sharing profit and loss. A shareholder (or stockholder) is someone who owns equity in a company. A share is an identical unit of equity that represents the ownership between the company and the shareholder. A stock market is divided into different sectors as per the classification scheme, each sector consists of a collection of equities that have a lot in common.
Shares are also traded over-the-counter market, usually known as the OTC market. Although the great majority of stocks are traded on exchanges, some are exchanged privately. Modern electronic trading has made the entire trading process more time-efficient and cost-effective, which now includes online share trading via an internet platform.
Shares Classification
Understanding various stock classifications can assist investors in making more informed investment decisions and reducing portfolio risk. Ordinary and preferred shares are the two basic categories of shares in an organization. Preferred stockholders receive regular dividend payments before common shareholders, but they do not have voting rights like ordinary shareholders. However, the following categories of shares are also discussed in the stock market:
- Authorized Capital
- Issued share capital,
- Subscribed share capital,
- Paid-up capital,
- Blue chips are shares/stocks of well-known corporations with substantial market capitalizations.
- Right share,
- Bonus share.
- Non-voting shares/Redeemable shares
- In an IPO (an initial public offering), a commercial entity/corporation or manufacturing unit raises funds by selling stock or equity in a public market. Generally, this refers to the first time a corporation offers stock.All of these shares are issued in response to certain events and needs linked with the business.
The renovation of the stock exchange:
There are many stock markets around the world, but the British East India Company was the first recognized joint-stock company in modern times. Stock trading grew in popularity in the late twentieth century. National Association of Development and Dealers Automated Quota (NASDAQ) is a global electronic marketplace for buying and selling stocks. It was the world's first electronic exchange, functioning between a web of computers that electronically processed trades. NASDAQ deserves credit for today's online global share trading, which is done by clicking buttons on the keyboard.
The New York Stock Exchange is the world's largest stock exchange; yet, the stock exchange's development is progressing on a continuous basis; however, the following four stock exchanges are always in tight competition:
- NASDAQ
- Shanghai Stock Exchange (SSE)
- European New Exchange Technology (Euronext)
- Hong Kong Exchange Stock Exchange Hong Kong Exchanges
Purposes of Stock Market:
A free-market economy includes the stock market. Exchanges not only connect companies and governments with investors, but they also ensure that trading takes place in an orderly and fair manner, allowing essential financial information to be delivered to investors and financial professionals. The stock market provides two significant purposes:
(a) The first is to deliver financing to businesses so that they can fund and expand their operations. By issuing stock/shares instead of borrowing money for expansion, the company escapes incurring debt and paying interest charges on that loan.
(b) The secondary purpose the stock market serves is to give investors the opportunity to share in the profits of listed companies. Investors can earn profit from purchased stock in 2 approaches:
- By receiving dividends, as most companies pay monthly dividends to their shareholders.
- Another way investors might benefit is by purchasing stocks and selling them if the stock price rises above their purchase price.
(c) If the system is not well-managed and securities are poorly priced, many people will cease investing, significantly reducing the availability of cash for expanding businesses. The stock market serves as a platform for individuals' savings and investments to be efficiently directed into productive investment possibilities that contribute to the country's capital production and economic progress. Investing in stocks is a better investment alternative than gold and silver.
Stock Market Players:
Many people trade stocks on a regular basis. Here are two kinds of stock markets:- Primary and secondary. Corporations, institutions/fund managers, investment banks, and public accounting companies dominate the primary market.
- In contrast to the primary market, where debt or equity is initially issued in exchange for money, the secondary market allows for the sale and trade of issued bonds and shares. The secondary market enables players to easily buy and sell securities. It operates on a Buyers and Sellers mechanism. Shareholders who want to acquire securities or debt should discover a seller in the secondary market. Transactions are made possible by a central marketplace, such as a stock exchange or an over-the-counter market (OTC).
Online shares trading:
Online trading is electronic trading that takes benefit of the internet and computers/smartphones. A person can select a trading platform and begin buying and selling shares. Electronic communication networks connect buyers and sellers directly, removing the majority of the intermediaries. When an investor wishes to begin online share trading, he or she must first open an account with a fully approved and registered stock exchange broker in order to gain access to the trading platform. Account opening generally involves the following steps:
- Application Process: Presently all stockbrokers engaged in online trading have their own URL and provide online account “opening form” to nationals and foreigners i.e., residents and non-residents, usually called KYC (know your customer).
- After activation of the account, the individual investor will be able to create online identifications, including a user ID and password for signing in. To begin trading, he/she must deposit funds into an account. However, there may be a minimum fund requirement.
- If an online trader is not a national and/or lives outside the stock-exchange country of the trading platform, then such an investor shall have to comply with certain additional requirements.
Disclaimers: the contents of this blog’s article should not
be taken as advice for online/offline stock trading. The purpose of
its writer is to share information based on search and study.