What is the Stock Market?

The stock market, known as (equity market), is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

Today the world stock market is estimated at about $51 trillion or more. The world derivatives market has been estimated at about $480 trillion face or nominal value, 12 times the size of the entire world economy. It must be noted though that the value of the derivatives market, because it is stated in terms of notional values, and cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.

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. The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock exchanges include the London Stock Exchange, the Deutsche Borse and the Paris Bourse, now part of Euronext.

In other words, stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. Holding a company’s stock means that you are one of the many owners (shareholders) of a company, and, as such, you have a claim (albeit usually very small) to very thing the company owns.

A stock is represented by a stock certificate. This is a fancy piece of paper that is proof of your ownership.Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, one vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the company. The management of the company is supposed to increase the value of the firm for shareholders. If this doesn’t happen, the shareholders can vote to have the management removed–well, this is the theory anyway. In reality, Individual investors like you and I don’t own enough shares to have a material influence on the company. It’s really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets.
Profits are sometimes paid out in the form of dividends.In case of liquidation, you’ll receive what’s left after all the creditors have been paid. This last point is worth repeating: the importance of stock ownership is your claim on assets and earnings.

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