Thursday, January 15, 2009

Stock Market For Beginners

Stock Market For Beginners

Stock Market

What is the stock market? Why is it important to the economy? Everyday we hear about it through all channels of media, be it print, broadcast (T.V. radio) and the web. You see, stock market is where marketable securities are traded – buying and selling of stocks. These marketable securities are stocks classified into common and preferred and bonds representing ownership to a public corporation

Now let us limit our discussion to the confines of the definition and immediate relevant matters therein. You see under stock market you will be amaze that it will entail more than 10,000 topics that can be discuss and we will loose focus our goal of a simple introduction on stock market.

We will go further by identifying the marketplace. This market place for stocks is called the exchange or bourse. I’m pretty sure you have heard of New York Stock Exchange, London Stock Exchange, Hong Kong Stock Exchange, and Tokyo Stock Exchange. And there are hundreds of stock exchanges all over the world, each doing the same thing that is (again) buying and selling of securities.

Do you have any idea on how much total capitalization of these exchanges put together? I would say about $36B, 36 billion Dollars is the value of all public corporations in the world. What do I mean? For example, we take a company listed at the exchange, Fluor Corp (NYSE:FLR) an American construction company listed at the New York Stock Exchange, it has a total market capital of $9B. We got the figure by multiplying current price of $50 to the number of shares outstanding which is 181.5Million. That’s the idea of market capitalization.

Who participates, and who does who on what are to do? Remember that stock market is trading of stocks, now the question, who are the personalities involved at the market. The brokers, are the ones who facilitates the buying and selling securities. The buyers are anybody willing to invest in such an instrument and the sellers who will divest ownership to that number of shares.

How is it done? Assuming you’re the prospective buyer, you have to look for a broker to execute a buy order. Law states that only brokers are authorize to do so. Next move involves the broker to place a buy order consisting of number of shares and the price. If there are sellers agreeable to your price then a trade is consummated.

Why do companies sell their shares at the stock market? Mostly these companies need more capital for expansion and others retire some of their long term debt. It also enhances the company profile as being a publicly traded company. Because by being a publicly traded company, they let public investors into their company as new owners and partake in business affairs of the company.

By: Ruben
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