Jehannah J.

Barat

Stock Market

I. What are Stocks?

Stocks are fractional pieces of publicly traded companies. If you own a

company's stock, you own a piece of that company. It is an ownership in a publicly
traded company. The ownership shares are called shares of stocks. Stocks are also
called equities. Only corporations can issue stocks as authorized by the Securities and
Exchange Commissions (SEC). Sole proprietorships and partnerships can never issue
stocks. The holders of the shares of stock as evidenced by the stock certificate are
called shareholders or stockholders. Shareholders have claim on the company’s assets
and earnings as owners of the corporation.

II. Why do people buy stocks?

a. Capital Appreciation

Buying a stock is buying a piece of a company. Over time, the value of

that ownership will rise and fall according to the success of the business. The
better the business does, the more your ownership will be worth. The difference
of your initial stock’s value to the current stock value is capital appreciation.

b. Dividend Payments

A dividend is a distribution of a portion of a company’s earnings, decided

by the board of directors to give to the shareholders. It can be in the form of cash
payments or shares. Once you’ve received your cash dividend you may choose
to withdraw it or buy more stocks.

c. Ability to vote shares and influence the company

Voting shares are shares that give the stockholder the right to vote on
matters of corporate policy making as well as who will compose the members of
the board of directors. The holders of voting shares have the ability to weigh in
on decisions about a company’s future direction.

For instance, if a company is considering an acquisition offer by another

company or a group of investors, the owners of voting shares would be able to
cast their vote on the offer. Shareholders who own voting shares typically receive
regular communications from the company regarding matters that would require
 a vote for the organization to act. The decision to vote or not vote on such issues
does not directly affect their ownership of shares or their value.

II. Why do companies issue stocks?

Companies issue stock to get money for various things, which may include:

a. Paying off debt

Some companies issue stocks to pay off debt caused by lack of financial
assets to pay off their liabilities from different financing institutions. For an
instance, if the company is supporting a new project and is financed through
banking loans, the company may want to pay off debt from its available assets.

b. Launching new products

For an instance, Apple Company would want to launch a new product

iphoneZ on the year 2023. If the company wants to issue stocks to source out
money for funding the project on product iphoneZ, they may be able to do so.

c. Expanding into new markets or regions

Corporations issue stock to raise money for growth and expansion whether
continental or world coverage.

d. Enlarging facilities or building new

Companies may issue stocks to purchase equipment for product usage or to buy
new buildings

III. Two Kinds of Stocks

a. Common Stocks (ordinary shares)

It is the most common form of stock. One share is equivalent to one vote. In
common stocks, dividends are not guaranteed.

b. Preferred Stocks (preference shares)

Preferred stocks have fixed dividend and it does not include voting rights.

IV. Other Categories of Stocks

a. Growth Stocks
 They have earnings growing at a faster rate than the market average. They rarely
pay dividends and investors buy them in the hope of capital appreciation. For
example, a start-up technology company.

b. Income Stocks

They pay dividends consistently. Investors buy them for the income they
generate. For example, an established utility company.

c. Value stocks

They have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy
than
stocks with a higher PE. They have fallen out of favor with investors.They buy
value stocks in the hope that the market has overreacted and that the stock’s
price will rebound.

d. Blue-chip stocks

They are shares in large, well-known companies with a solid history of

growth.They generally pay dividends

V. What is the Stock Market

It refers to the collection of markets and exchanges where regular activities of

buying, selling, and issuance of shares of publicly-held companies take place. Such
financial activities are conducted through institutionalized formal exchanges which
operate under a defined set of regulations. There can be multiple stock trading venues
in a country or a region which allow transactions in stocks and other forms of securities.

VI. How the Stock Market Works

a. Primary Market

This is where newly-issued shares are created as a result of a process known as

Initial Public Offering. IPO is the process through which a company offers equity
to investors and becomes a publicly- traded company.

b. Secondary Market

This is where investors trade previously issued stocks. This is what we call stock
exchange. In this process, companies are not involved in buying and selling their
stock, instead stocks are traded among investors. Stock exchange is referred to
as trading of stocks at an agreed price among investors.
 Some of the big stock exchanges in the world are New York Stock Exchange,
London Stock Exchange, Honkong Stock Exchange and NASDAQ.

VII. Functions of Stock Market

1. Providing liquidity and Marketability to Existing Securities: Stock Exchange provides a

ready and continuous market for buying and selling securities. It provides a platform
where shares can be sold and bought by buyers and sellers.

2. Pricing of Securities: Based on the forces of demand & supply, Stock Exchange helps
in putting a value on the securities which provide instant data to both buyers and sellers
and thus helps in the pricing of securities.

3. Safety of Transaction: All participants associated with a stock exchange are well
regulated, and are required to work within the legal framework given by the regulator.
Such a system ensures the safety of transactions. In India, all trading is regulated by
SEBI.

4. Contributes to Economic Growth: People get a chance to buy and sell their shares,
letting them invest money. Stock exchange provides a platform by which savings get
channelized into the most productive investment proposals, which leads to capital
formation & economic growth.

5. Spreading of Equity Culture: Stock exchanges have extensive information on the

listed companies, which is further available to the public. This data helps in educating
public about investments in securities which leads to spreading of wider ownership of
shares.

6. Providing Scope for Speculation: Securities, when purchased solely with a view of
gaining profit through price movement to a target is called speculation. Stock exchanges
provide scope within the provisions of law for speculating in a restricted and controlled
manner.

BIG CONCEPT

When a company is doing well, more people want to buy stock and its price in the
market rises. When a company is not doing well, more people want to sell the stock
and its price falls.
Erick Cendaṅa

Stock Market Participants

1. Stock Broker

A stock broker who buys and sells securities on a stock exchange on behalf
clients. There are pros in having a stock broker. They provide great career option, offers
high commission, they are fit for ambitious individual. However, there are cons which
include: ability able to handle rejection, they are extremely competitive, and they may
require long hours of work.

2. Portfolio Managers
They are primarily responsible for creating and managing investment allocations
for private clients. He is also an individual that develops and implements investment
strategies for individuals or institutional investors.

3. Investment Bankers
They play a role by helping companies and government entities obtain capital
financing. He is an individual who often works as part of a financial institution and is
primarily concerned with raising capital for corporations, government, or other entities.

4. Custodian

He is responsible for holding customer’s securities for safe-keeping in order to

minimize the risk of their theft or loss.

5. Market Maker

He is a dealer in securities or other assets who undertakes to buy or sell at

specified prices at all times. It is an individual market participant or member firm of an
exchange that also buys and sells securities for its own account.

HOW STOCK EXCHANGES MAKE MONEY?

1. Stock exchange operates as for-profit institute and charge a fee for their
services.

2. The primary source of income for these stock exchanges are revenues from
the transaction fees that charged for each trade carried out its platform

3. Selling market Data.

 4. Fees in trading.

5. Stock exchanges earn revenue from listing fee charged to companies during
IPO process and other follow-on offerings.

COMPETITON FOR STOCK MARKETS

EXAMPLES:

 DARK POOLS
1. Are type of alternative trading system that gives investor the opportunity to
place orders and make trades without publicly revealing their intentions during
search for a buyer or seller.

2. Emerged in the 19980’s when the Securities and Exchange Commission

(SEC) allowed brokers to transact large blocks of shares.

3. Dark pools can charge lower fees than exchanges because they are often
housed within a large firm and not necessarily a bank.

 BLOCKCHAIN VENTURES
-It is literally just a “chain of blocks”.

-BLOCK AND CHAIN in this context, we are actually talking about digital
information stored in a public database.

HOW IT WORKS?

THEY POSE THREAT TO THE TRADITTIONAL STOCK MARKET

MODEL BY AUTOMATING BULK OF THE WORK DONE BY VARIOUS
STOCK MARKET PATICIPANTS BY OFFERINGZERO-TO LOW-COST
SERVIES.

EXAMPLE:

 BLOCKS store information about transaction

eg. Time, date, and money.

 Block store information about who is participating the transaction.

 Blocks store information that distinguishes them from other blocks.
SIGNIFICANCE OF THE STOCK MARKET
  STOCK MARKETS ARE VITAL COMPONENTS OF A FREE-MARKET
ECONOMY BECAUSE THEY ENABLE DEMOCRATIZED ACCESS TO
TRADING AND EXCHANGE OF CAPITAL FOR INVESTORS F ALL KINDS.
 THEY PERFORM SEVERAL FUNCTIONS IN MARKETS, INCLUDING
EFFICIENT PRICE DISCOVERY AND EFFFICIENT DEALING
 THEY PERFORM SEVERAL FUNCTIONS IN MARKETS, INCLUDING
EFFICIENT PRICE DISCOVERY AND EFFFICIENT DEALING
Stock Market Indices

Indices represent aggregated prices of a number of different stocks, and the

movement of an index is the net effect of the movements of each individual component

A market index is a popular measure of stock market performance.

 MARKET-CAP WEIGHTED – which means that the weight of each index

constituent is proportional to its market capitalization

EXAMPLES OF STOCK MARKETS

 LONDON STOCK EXCHANGE

THE LONDON STOCK EXCHANGE WAS THE FIRST STOCK
EXCHANGE IN THE WORLD. IT STARTED IN A COFFEEHOUSE, WHERE
TRADERS USED TO MEET TO EXCHANGE SHARES, IN 1773.

 UNITED STATE OF AMERICA

THE FIRST STOCK EXCHANGE IN THE UNITED STATE OF AMERICA
WAS STARTED IN PHILADELPHIA IN 1790.

IT CALLED BUTTONWOOD AGGREEMENT, SO NAMED BECAUSE IT

WAS SIGNED UNDER THE BUTTONWOOD TREE, MARK THE BEGINNINGS
OF THE NEW YOR’S WALL STREET IN 1972. THE AGREEMENT WAS
SIGNED BY 24 TRADERS AND WAS THE FIRST AMERICANORGANUZATION
OF ITS KIND TOTRADE IN SECURITIES. THE TRADER RENAMED THEIR
VENTURE AS NEW YORK STOCK AND EXCHANGE BOARD IN 1817.

LARGEST STOCK EXCHANGE MARKET

Stock exchanges have been around for more than two centuries. The
venerable NYSE traces its roots back to 1792 when two dozen brokers met in
Lower Manhattan and signed an agreement to trade securities on commission; in
1817, New York stockbrokers operating under the agreement made some key
changes and reorganized as the New York Stock and Exchange Board.
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