What Is Stock Market? Specific Features
According to Wikipedia, the stock market is a set of economic relations concerning the issuance and turnover of securities between its participants.
What Is Stock Market?
The stock market, besides economic zones, includes other relations (legal, public, etc.), which are designed to provide a constant turnover of securities, necessary for investors (private individuals) who need to receive personal income (for personal purposes: buying an apartment etc.), as well as for companies which place their shares for constant investments that are needed for business development and optimization of its processes.
Now, many of us begin seriously thinking about additional income through trading in financial markets; it can be trading cryptocurrencies, binary options, Forex. Studying the options of financial markets, you will definitely see the phrase «stock market». Still, why do we need a stock market and can it be useful for an ordinary person who is looking for ways to generate additional income? You will find the answers in our article.
Generally speaking, this is set of mechanisms which allows to trade securities with the help of regulations. This market undergoes rigid rules and orders, it has strict regulation which differs it from over-the-counter trading (for example, largest over-the-counter trading is held in RTS Board system (official web-site), MOEX (official web-site), in USA – NASDAQ (official web-site). Over the counter market is one more type of securities market, where transactions with securities is performed out of stock market.
Different individuals act as participants in such market who find each other through intermediaries: major investors, financial institutions, dealers who do not want to conduct transactions in an official way, that is, on the stock exchange. Also, most often transactions with assets are conducted out of the stock market which do not meet the rules for admission to trading on the stock exchange (also called stock listing), these are mainly assets of small companies (for example, assets of Bashneft, TNK-BP Holding were initially available outside the stock exchange).
The main advantage of such trading is that participants do not need to adhere to strict rules: you can trade from any part of the planet in any volume of shares you want. Such trading is beneficial for those participants who cannot conduct a transaction for various reasons, for example, because of the low liquidity of the asset on the exchange, which is less profitable for the investor.
The over the counter market is characterized by the absence of a single center which would manage the process, including asset pricing; today this is a network of dealers conducting transactions through information systems. The pricing procedure is also difference in these markets: at the exchange, bids are like following into one place, the market participants interact among themselves, while in the over the counter market, transactions are conducted between the customer and the dealer (who, having previously bought assets, wants to sell them at a better price); the value of assets on the stock exchange is available simultaneously for all participants; in the outside market, only the dealer knows the price who made the transaction with the interested client.
Most over the counter transactions take place on the RTS Board resource, it publishes prices at which an investor can conduct a transaction, however this price is not final and may change. You can add the assets to the system in order to add them to the over the counter trading (submitting an application, the company should meet the minimum requirements of the RTS Board).
However the definition of stock market as a place where traders transactions are conducted through brokers and functions provided by them, is more popular. Besides, stock makes it possible to create and support turnover of different securities, so the other definition is frequently considered as its synonym – securities market, which is considered to be more general, including over the counter trading. Uniting different parties with their own interests, stock market is attractive and profitable tool for competent investments in assets:
- for those who have money and would like to increase their amount and those who would like to earn it,
- for companies that are interested in receiving investments from the outer source, expanding the staff of investors and those who have money and want to invest their capital profitably (in order to join the management of the company, to get a steady income from dividends),
- for brokers offering services for comfortable uninterrupted trade and investors who want to buy or sell assets profitably – various securities of the largest organizations (from the food industry to oil ones, automobile, construction magnates).
This market is the most stable under economic instability. It makes possible to purchase (sale) assets for the following purposes: to become part of the management structure of the business (investors) or generate income on the difference from transactions (speculators). The age of information technology has made work with global markets available from home, and mobile devices offer access to trading at any place. Modern stock exchanges offering stock trading services do not need offices, all work is performed in a convenient electronic form.
History of stock market
The first prototype of stock markets appeared and operated in a full in the 13th-14th century in the form of bill fairs, in which people traded bills of exchange (from German – exchange) – written under taking guaranteeing the owner to receive a specific amount. In Money changers were the first ones who did it in France from 1304. In the 14th century, the state began to issue securities, the first stock exchanges were established. Further, in the 16th century, the development of the stock trading process contributed to the widespread distribution of stock exchanges. It is interesting, that the stock exchange in Bruges, according to Wikipedia, serving foreign investors, was the first to publish data on the value of the securities it offered in 1592, and that particular date has been called the year of birth of all the exchanges.
The development of securities contributed to the rapidspread of stock markets, the widespread distribution of joint-stock companies (for example, British, Baltic, East India companies), which united private funds for transactions and allowed owners to receive income. For example, the Amsterdam Stock Exchange served the shares of the popular East India Company, allowing cash payments in transactions, as well as forward transactions that formed the speculative market.
It is worth noting that until the 19th century there were few joint-stock companies, and the turnover of their securities was still small; however, by the end of the century, this form of ownership had become wide spread due to the use of shares that had become especially popular. At the same time, all stock trading processes were worked out on the stock exchanges and they are still available today: for example, on the Amsterdam, New York Stock Exchange, English one, etc. The development of the market in Austria-Hungary, the USA, Germany contributed to the emergence of specialized exchanges: in Manchester (railway, textiles), Liverpool (insurance companies), Glasgow (shipbuilding, steel industry) and others.
This allowed the formation of exchanges-legends with an impressive development history. The Amsterdam Stock Exchange, which has operated since 1611, is today the oldest international stock market. In USA the NYSE Stock Exchange (Wikipedia) was opened in 1792, which contributed to the rise of the empires of the Rockefeller magnates (Wikipedia), Morgan (Wikipedia), for example. Until 1917, there was also a market for stocks and bonds in the world, the development of which was suspended during the period of revolutions and only after the 1990s the distribution of stock exchanges resumed, which is very dynamic today. Thanks to the widespread use of the Internet, the market is developing right before our eyes.