Stock Markets

What is the stock market?  A stock market is a place where the stocks and shares of listed companies/firms are bought and sold by individual holders or their agents or institutional investors.  It can be a public market or a private market and the price of the share or stock is determined by market forces, the performance of the company and other related factors.  The size of the world stock market is determined to be huge and the derivative market is estimated to be 30 times the size of the stock market. 

The purpose of the stock exchange is to facilitate price discovery and the purchase and sale of shares and stocks.  Listed shares and stocks are stocks and shares that are registered in the stock exchange and can be traded at market prices in that stock exchange. Stock exchanges can be physical locations or virtual locations.  Where the platform is a physical location, buyers and sellers call out the prices at which they are willing to buy or sell, respectively in a system known as open outcry.  Virtual exchanges register the buying and selling prices electronically over a network.

Sometimes active trading can be moved out of the stock exchanges to private trading systems by powerful banks and financial organizations which undertake to bring buyers and sellers together.  Virtual trading has also contributed hugely to this trend.

Over a period of time the nature of the stock market trader has also undergone a change.  Initially, trading on the exchange was the forte of wealthy businessmen who had family histories and emotional attachments to specific corporations. Later, small and medium investors entered the market.  The advent of mutual funds and other large funds has resulted in the rise of the institutional investor.  These investors have successfully broken the solid front presented by stock brokers and have also been indirectly responsible for the reduction in the fees that is charged from small investors in the stock exchange. 

The stock market is one of the important sources for finance for companies on a growth path.  When a privately held company is desirous of expanding and investing large amounts of money, they see public issue of stock as a means of raising the required capital. 

Small investors also find a platform from which to buy and sell shares quickly. 

The dynamics of the stock market is also a indicator of economic activity and of the social mood. 

The stock market is also a means of disintermediation.  Funds which were earlier routed through banks and other savings mechanisms are now directly invested through the stock exchange.