STOCK MARKET

Stock Market is also called as the equity market. It is a public market for the purpose of trading the stocks and its derivatives by which the companies listed in the Stock Market raise money for their future investments and operations. It is imperative that we know what the Stocks and Derivatives are, along with few other basic terminologies, in this highly competitive and dynamic world.

Stock

The stock is also known as the capital stock which represents the capital invested in the business by the founders of the business. The stock can be divided into shares which has a face value or par value (the minimum amount of money the business would issue and sell its shares for). Shares are the ownership given by the business in the business. There are different types of shares which have specific ownership rules, share values and privileges. There is also non par stock, which doesn’t have any par value associated with it. Stock certificate, which is a legal document, specifies the specifics of the share and also the amount of shares owned by the shareholder, denotes the ownership of the share.

Stocks are of 2 types, common stock and preferred stock. The common stock has the voting rights while that of the preferred stock doesn’t include the voting rights. The main feature of the preferred stock is that it is entitled to receive the dividends payment before any dividends can be paid to others. A form of preferred stock is the convertible preferred stock, which includes an option for the shareholder to convert the stock into common stock.

Derivatives

Derivatives are one that has a value which is dependent on the underlying stock’s price. The main types of derivatives are futures and options. If the buyer is long, who takes on the liability to buy when the contract maturity date arrives and if the seller is short, who takes on the liability to sell, then this kind of contract is Stock futures. Call option and Put option are the option classes in the stock option, which has the right to buy any stock at a fixed price in future and which has the right to sell any stock at a fixed price in future, respectively.

Shareholders

The company or an individual who owns one or more shares of a company legally is called a shareholder. Any company’s main motive is to enhance the value of the shareholders by proper functioning.

Simple Example to show how shares are sold

Let us assume that you have a business which is worth Rs 10, 00, 000, and you’re offering it for sales. 10 people come and say that they are interested in buying the business but they don’t have enough cash for it. So you decide to divide the business into shares of 10, worth Rs 1, 00, 000 each and sell them to those 10 people. The people having obtained 10% share each on the business, will have special rights to vote and take some decisions. At the end of the year, the profit will be shared between them in the name of dividends. This is the simplest form of explaining this concept.

Stock Exchange or Stock Market

Companies raise money for their investments through stock market. The main advantage of using stock market for raising money is that the exchange provides the investors with quick ability to sell their securities. Exchanges are the clearinghouse for the transaction, they usually collects and delivers the share and also guarantees the payment to the seller. The exchange makes selling and buying feasible. The share price is an important factor that has to be looked at. If the share prices increases that means there is more business investments and vice versa.

Incorporating

If a business wants to sell its shares to many numbers of people, then the business becomes a corporation. Incorporating is the process of a business turning into a corporation. One interesting point in corporation is that it is seen as a virtual person, having social security number, registered with government, can have property, can sue people in court and also can be sued; the only thing that is different from a person is that it has an indefinite life span.

Shareholders

Shareholders are the group of owners owning the corporation. They have the rights to elect board directors and take major decision in the corporation. Corporations may be private held or public held. The private held corporations have few members (may know each other too) who own the shares between them, while public held may have thousands of shareholders.