Stock Market Indices
By Chris Siddell, Halal Incorp
Quite often the term stock market can refer to the assortment of exchanges and other venues where the selling, buying, and issuance of shares of publicly held companies occurs. Such financial activities are achieved through institutionalized formal exchanges (whether physical or electronic) or by over the counter (OTC) marketplaces that function under a defined set of rules and regulations.
The stock market is composed of stock exchanges. The stock exchange, which is sometimes referred to as a bourse or even securities exchange, is a marketplace in which buyers and sellers can sell stocks, bonds, shares, or other securities. Usually, stocks are issued by companies, and entities are issued on primary markets and then they are made available for trade on exchanges.
Stock Market Indices
As of today, there is a minimum of 60 stock exchanges in the world. Thirteen of which are in the United States alone. The largest stock exchange in the world is based in New York and it possesses an equity of over 25 trillion USD. In terms of other large exchanges, the NASDAQ is second (also in the US), behind that is the Japan Exchange Group, the Shanghai Stock Exchange, Hong Kong Exchange, and Euronext.
If a company is to be put on a stock exchange, it has to come to an agreement with the stock exchange in question. This permits its securities to be listed for purchase by potential buyers if their share price hits a specific value. When offering their shares for the first time, the company does so through an Initial Public Offering (IPO).
For those interested in buying, they can be amateurs who are interested in investing in stocks for beginners, professionals, institutional investors, or private individuals. Trading can take place through a variety of avenues, such as telephone calls or email with a broker, online via a broker, or via a trading platform such as eToro where they perform the trades remotely, as and when they wish.
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The key reason large volumes of people wish to invest and understand how to buy and sell stocks and bonds is to get their money to work for them. By investing in the stock market, investors hope to put their money to good use by purchasing a segment of the company. They buy a share or other security at a certain price, with the aim that it will grow in value. This means that they can sell it for a profit further down the line. Of course, the value of shares and stock can fluctuate a lot, and frequently so investors need to decide if they are playing a long-, or short-term game.
Each individual stock exchange is in possession of its own specific opening time, depending on where they are located and the time zone, they are in. However, as there are so many exchanges all over the globe, with different time zones, it is in fact possible for buyers to trade around the clock.
Stock Market Indices
Although both the terms ‘stock exchange’ and ‘stock market’ are used interchangeably a lot of the time, the term exchange commonly comprises a subset of market. Buyers and sellers arrange to meet in order to exchange equity shares of public corporations via stock markets. These markets are very important aspects of a free-market economy as they allow democratized access to trading as well as exchange of capital for investors of all sectors. Stock exchange carry out numerous roles in markets, such as effective price discovery and efficient dealing.
Certain countries and regions may have multiple exchanges comprising their stock market. For example two of the world’s best known exchanges are the globally renowned New York Stock Exchange (NYSE) & the US Nasdaq. It is these leading national exchanges, along with multiple other exchanges operating in the country, that form the stock market of the United States.
So, what is the role of the stock market? Essentially the purpose of the stock market is comprised of multiple roles but, largely, the stock market is used as a ‘safe’ space for investors and companies to buy and trade assets as well as shares. This also allows the opportunity for the valuation of assets.
The stock market is important for companies for many different reasons. One of the key reasons it is important to companies is because it gives them access to liquidity, which can be used to pay off debts, launch new products and services, invest in infrastructure and most importantly, gain more profit. The stock market also plays a key role for national and international economies. On a national scale, having a functioning stock market(s) is important as it can help encourage business and have a positive impact on driving economic growth.
There is often a noticeable correlation between a country’s economy and the state of their stock market. A well-functioning stock market can also lead to higher rates of employment, which is obviously good for a country. Also, if a certain country’s stock market is performing exceptionally well, it may very well encourage outside/international companies to invest in them. For investors, stock markets are important as they provide them with an opportunity to make money, depending on how well it goes. It gives investors the opportunity to own their own portion of big companies and reap the benefits of that company’s success.
Stock Market Indices
There are figures in the financial world that work as a glue to keep the stock market running as efficiently as possible. To keep the 60 or so stock exchanges running smoothly there are six ‘main players’ who are in place to do so. They are all linked together and are each in charge of their specific roles.
These tasks involve oversight, regulation, supervision, and investment activities. If it wasn’t for these players, the financial industry and the stock market would cease to function. The players I am referring to are Issuers, Investors, Intermediaries, Independent Public Authorities, Central Institutions and Rating Agencies. These all have different tasks assigned to them; however, they are all needed to keep the clogs on the stock market machine, turning.
As previously mentioned, the stock is not an individual market, but it is in fact made up from many which are based all over the world. Traders and investors buy, sell and trade stocks all with the overall aim of making money from it. This is done by profiting from an increase in prices on the stocks they have invested in, etc. The actual worth of each stock/share is forever changing and can be affected by features such as supply, demand, economic factors, political events, and matters that occur within the company itself. When deciding whether certain stock is worth investing in, investors will inspect the value of the currencies applied to certain equities and make their decision from there. They may conclude that the best choice is to invest in a single company or in indices, which involves the stock of several.
After purchasing stock, the buyer will proceed to keep hold of it for an indefinite amount of time, or until it goes up in price and they make the decision to sell it. In certain instances, the buyer will participate in futures trading. This entails them to predetermine when they will sell the share they are about to acquire, irrespective of its value at the time.
Wall Street is home to the New York Stock Exchange (NYSE) which is the largest stock exchange on the planet. Wall Street is undoubtedly the ‘top dog’ when it comes to stock exchange as it holds the most shares and possesses the most money compared to all other competitors.
Stock Market Indices
Despite it booming today, Wall Street hasn’t always had a smooth run. For example, when most people hear Wall Street, they immediately think of the infamous Wall Street Crash which occurred in 1929. This crash is one of history’s finest examples of the importance of stock markets. This is because the crash resulted in global devastation and contributed to the death of many, through starvation and suicide.
Although having recovered now, the effects of the stock market crash were noticeable for many years following the incident. This once again highlights how vital it is that a stock market is ran properly and effectively, or else the repercussions could be devastating. Despite its rocky past, Wall Street now has a very powerful role worldwide. It also benefits greatly towards America’s economy.
To conclude, it is clear to see the financial opportunity there is when it comes to investing in the stock market. It is also apparent how important the many stock exchanges are and the impact they have on economies all across the world.
Disclaimer: The views of the author do not necessarily reflect the views of Halal Incorp. This article does not provide financial advice. When seeking financial advice always refer to professional financial advisors.