Stock market basics

The Stock Market

The stock market also known as the equity market refers to the collection of equity, exchanges and market where stocks and shares are traded (sold & bought). It is also an avenue through which companies issue out their privately owned shares to privileged individuals who are willing to purchase them. While a lot of people erroneously use the term stock exchanges interchangeably with stock markets, they actually mean different things.

Stock exchanges are the commodities bought in the stock markets. The foremost leaders of the stock exchange in the U.S are the BATS, Nasdaq, New York Stock Exchange (NYSE) and the Chicago Board Options Exchange (CBOE). All these, as well as many others, make up the stock market of the U.S.

Apart from stocks, shares, and equities being sold here, there’s also the bonds, currencies and commodities traded here also.

  How It Works

The stock market operates a very regulated and secure environment that allows all traders the opportunity to transact and interact in shares and other financial instruments. The stock market has two modes of operation; a primary market and a secondary market.

In the aspect of operating as a primary market, it allows companies to sell and issue out their shares to the public. While as a secondary market, it serves the purpose of a trading platform where buying and selling of shares issued and already owned by the investors. The companies separate a part of the shares they wish to sell (maybe 30 million shares), and they give it out at a rate of $20 per share. The stock market serves as a facilitator by providing a trading zone where buyers meets seller and shares are exchanged for currency. The stock exchange earns fees for every trade that is sold on its platform.

How Does The Stock Market Make Its Money

The stock market generates their income from the sale of the following:

  • Selling market data: All sellers of equity have their market on the stock markets and so all their database are on its platform, hence the stock market has access to all these information and can sell it to whoever is interested, be it reference data, real-time data, historical data etc.
  • Fees: To sell or buy on the stock market, you need to pay certain fees, like the registration fee and regulatory fee.
  • Licensing: By this the stock market licenses their indexes (a list of all their items and their pricing) to help set a benchmark for launching their various funds and products.
  • Revenues: The stock market provides training courses and certification to various participants and for every subscription, they generate their revenue.
  • Transaction fee: This is their primary source of income and is generated by the charges placed on all trading activity carried out on the platform.

Stock Broking

Stock broking is the activity of mediating trade between a buyer and a seller of stocks, shares and equities. Stockbrokers are institutions or professional individuals who are licensed legally by the stock market to buy and sell securities (stock, shares, equities, bonds etc) on behalf of investors and retailers through the stock exchange.

In need of stock brokers? Yes! Everything has gone viral and with just a click of the button you can get online stock brokers ready to do your bidding. So here are some of the best brokers.

  • Merrill Edge
  • Charles Schwab
  • TD Ameritrade etc.

Learn the importance of the stock market in our following articles.