The expression ’stock market’ refers to the market that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market
. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly ‘over-the-counter’).
The size of the worldwide ‘bond market’ is estimated at $45 trillion. The size of the ’stock market’ is estimated at about $51 trillion.
The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together.
A company can issue “shares” that represent ownership in a portion of the company. For example, if a company has issued 1,000,000 shares and you own 1,000 of those shares, then you own 0.1% of the company. The word “stock” is another word for “shares”.
A stock market (there are actually several) is a system that enables people to buy and sell these shares. Each stock market operates slightly differently, but in general this is how buying and selling works:
If you are selling, then you tell the market how many shares you want to sell and for what price. If someone else has told the market that they will buy shares for your price (or higher) then your shares are sold to that person. Otherwise, you have to wait until someone is willing to pay that price.
On the other side, if you want to buy shares, you tell the market how many shares you want and how much you will pay for them. If someone has told the market that they will sell for that price (or lower), you buy the shares from them, otherwise you have to wait until someone is willing to sell the shares at your price.
The reported price of a stock is simply the price of the stock in the last trade.
Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.
Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter “verbal” bids and offers simultaneously.The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real).
Some of the listed well known stock exchanges are :
National Stock Exchange
Bombay Stock Exchange
New York Stock Exchange
NASDAQ
Paris Bourse