The stock market which is also known as the equity market or the share market is where buyers and sellers meet to trade on all forms of financial assets like equity, bonds etc. The stock market plays an essential role in the economy; companies raise needed capital for projects by selling parts of their ownership rights to the public. The Security and Exchange Commission (SEC) regulates the markets by carrying out the oversight of the US Financial market. Their primary duty is to protect investors by maintaining a fair and orderly market. Brokers, investment bankers, portfolio managers are amongst the major players in the stock market.
Stock market Vs Stock Exchange
The best analogy I can think of is this; the stock market is a big shopping mall consisting of different departmental stores big and small which in this context is the stock exchange. The market is the place where all the trading happen while the stock exchange is a specific location of the transaction. There are numerous big stock exchange firms like NYSE, BSE, NASDAQ etc.
How the stock market works
Within the market, they are two main categories which are:
- The primary market: this is where newly registered securities (assets) are being sold for the first time. This is through initial public offerings (IPOs) signifying that it’s the first time the stock is being sold to the public.
- The secondary market: this is where every other trading happen. Large organisations and individuals trade in the secondary market.
Technology has drastically changed the way the market operates. Now everything is done electronically; even the stocks are held in a virtual space no more awarding of a physical certificate. The NYSE is the largest stock exchange in the world with a market capitalization of US $21.1 trillion.
Note: market capitalization entails the dollar value of the specific company’s shares.
Importance of the stock market to the economy
The stock market provides a valuable platform for companies to raise the critical funds they need to operate by selling parts of the company to investors. Now investors in return, either gain from the profits of the company or loses if the company fails to make profits. The economy of the world somehow depends on how the market fairs because if the markets are flourishing, organisations and individuals will make profits while the economy will grow as well.
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