[Sandeep]

A thread dedicated to all Business related information. Articles/queries related go in this thread!

[Sandeep]

How Stock Markets work?

In order to understand what stocks are and how stock markets work, we need to dive into history--specifically, the history of what has come to be known as the corporation, or sometimes the limited liability company (LLC). Corporations in one form or another have been around ever since one guy convinced a few others to pool their resources for mutual benefit.

The first corporate charters were created in Britain as early as the sixteenth century, but these were generally what we might think of today as a public corporation owned by the government, like the postal service.

Privately owned corporations came into being gradually during the early 19th century in the United States , United Kingdom and western Europe as the governments of those countries started allowing anyone to create corporations.

In order for a corporation to do business, it needs to get money from somewhere. Typically, one or more people contribute an initial investment to get the company off the ground. These entrepreneurs may commit some of their own money, but if they don't have enough, they will need to persuade other people, such as venture capital investors or banks, to invest in their business.

They can do this in two ways: by issuing bonds, which are basically a way of selling debt (or taking out a loan, depending on your perspective), or by issuing stock, that is, shares in the ownership of the company.

Long ago stock owners realized that it would be convenient if there were a central place they could go to trade stock with one another, and the public stock exchange was born. Eventually, today's stock markets grew out of these public places.

Stocks

A corporation is generally entitled to create as many shares as it pleases. Each share is a small piece of ownership. The more shares you own, the more of the company you own, and the more control you have over the company's operations. Companies sometimes issue different classes of shares, which have different privileges associated with them.

So a corporation creates some shares, and sells them to an investor for an agreed upon price, the corporation now has money. In return, the investor has a degree of ownership in the corporation, and can exercise some control over it. The corporation can continue to issue new shares, as long as it can persuade people to buy them. If the company makes a profit, it may decide to plow the money back into the business or use some of it to pay dividends on the shares.

Public Markets

How each stock market works is dependent on its internal organization and government regulation. The NYSE (New York Stock Exchange) is a non-profit corporation, while the NASDAQ (National Association of Securities Dealers Automated Quotation) and the TSE (Toronto Stock Exchange) are for-profit businesses, earning money by providing trading services.

Most companies that go public have been around for at least a little while. Going public gives the company an opportunity for a potentially huge capital infusion, since millions of investors can now easily purchase shares. It also exposes the corporation to stricter regulatory control by government regulators.

When a corporation decides to go public, after filing the necessary paperwork with the government and with the exchange it has chosen, it makes an initial public offering (IPO). The company will decide how many shares to issue on the public market and the price it wants to sell them for. When all the shares in the IPO are sold, the company can use the proceeds to invest in the business.

[Sandeep]

What is a Share?

A share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market.

By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." For example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price.

Quick Facts on Stocks and Shares

* Owning a stock or a share means you are a partial owner of the company, and you get voting rights in certain company issues
* Over the long run, stocks have historically averaged about 10% annual returns However, stocks offer no guarantee of any returns and can lose value, even in the long run
* Investments in stocks can generate returns through dividends, even if the price

How does one trade in shares ?

Every transaction in the stock exchange is carried out through licensed members called brokers.

To trade in shares, you have to approach a broker However, since most stock exchange brokers deal in very high volumes, they generally do not entertain small investors. These brokers have a network of sub-brokers who provide them with orders.
The general investors should identify a sub-broker for regular trading in shares and palce his order for purchase and sale through the sub-broker. The sub/broker will transmit the order to his broker who will then execute it .

What are active Shares ?

Shares in which there are frequent and day-to-day dealings, as distinguished from partly active shares in which dealings are not so frequent. Most shares of leading companies would be active, particularly those which are sensitive to economic and political events and are, therefore, subject to sudden price movements. Some market analysts would define active shares as those which are bought and sold at least three times a week. Easy to buy or sell.

[Sandeep]

Different types of Markets

Life Insurance
Life Insurance policies are another kind of investment that is fairly popular. It is a way to ensure income for your family when you die. It allows you a sense of security and provides a valuable tax deduction.

Stocks
Stocks are a unique kind of investment because they allow you to take partial ownership in a company. Because of this, the returns are potentially bigger and they have a history of being a wise way to invest your money.

Bonds
A bond is basically a promise note from the government or a private company. You agree to give them a set amount of money as a loan and they keep it for a set number of years with a predetermined amount of interest. This is typically a safe bet and one that is a good investment for a first time investor because there is little risk of losing your money.

Mutual Funds
Mutual funds are a kind of investment that are based on the gains and losses of a shareholder. Basically one person manages the money of several or many investors and invests in a list of various stocks to lessen the effect of any losses that may occur.

Money Market Funds
A good short-term investment is a Money Market Fund. With this kind of investment you can earn interest as an independent shareholder.

Annuities
If you are interested in tax-deferred income, then annuities may be the right kind of investment for you. This is an agreement between you and the insurer. It works to produce income for you and protect your earning potential.

Brokered Certificates of Deposit (CDs)
CDs are a kind of investment where you deposit money for a set amount of time. The good thing about CDs is that you can take the money out at any time without paying a penalty fee. We all know life isn't predictable, so this is a nice feature to have in your option.

Real Estate
Real Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time

[Ninja]

Nice initiative Sandy. Need to spread reps I have just started trading. I am sure this thread will help me.

Any idea what bottomline and topline means? I think they are used to evaluate the performance of a company, but i don't know the exact meaning.

[Agnel]

A thread about "What is?" would also help

[Sandeep]

Originally Posted by Ninja

Nice initiative Sandy. Need to spread reps I have just started trading. I am sure this thread will help me.

Any idea what bottomline and topline means? I think they are used to evaluate the performance of a company, but i don't know the exact meaning.

Bottomline: Net income of the company. An informal term used for Net income, simple reason being it is typically found on the last line of a company's income statement!

Topline: Informal term for Revenue, which forms the first line of the account statement.

[Sandeep]

Originally Posted by Agnel

A thread about "What is?" would also help

Here u go! List of Active Trading Terms

[xXx]

Good Info.....sandy repped!!!