Saturday, 25 February 2012

what is stock market?

what is stock marketA stock market which is also known as equity market is a public body in which a free network of economic transactions occurs. It is not a physical facility or secret body. It is the place for the trading of stock or shares of company and its derivatives at an agreeable price. These shares and derivatives are securities that are listed on a stock exchange.

It was estimated that the world’s stock market size was at around $36.6 trillion at the beginning of October 2008. The entire market of world derivative has been estimated at around $791 trillion face or nominal value which is eleven-fold of the total world economy. Since the value of derivative market is presented in terms of notional values, it cannot be straightly compared to a fixed income security or a stock, which conventionally refers t an actual value. Furthermore, the large majority of derivatives cancels each other out which means that a derivative bet on an event that occurs is counteracted by a comparable derivative bet on an event that does not occur. Many of the securities that are relatively not liquid like that are valued as marked to model, instead of valued as an actual market price.
The stocks are traded and listed on stock exchanges which are body of a company or mutual organization that is specialized in getting buyers and sellers of the organizations to a list of securities and stocks together. Categorized by market capitalization, the biggest stock market in the US is the new york stock exchange while in Canada, it is the Toronto Stock Exchange. Examples of leading European stock exchanges comprise London Stock Exchange, Amsterdam Stock Exchange, Paris Bourse, and Frankfurt Stock Exchange (Deutsche Börse). In Africa, there are JSE Limited and Nigerian Stock Exchange. In Asia, there are the Tokyo Stock Exchange, Singapore Exchange, the Shanghai Stock Exchange, the Hong Kong Stock Exchange, and the Bombay Stock Exchange. In Latin America, the examples include the BMV and the BM&F Bovespa.
The participants in London Stock Exchange vary from individual investors to big traders or also known as hedge fund traders, and they can be based anywhere. In the end, their orders are generally handled by professionals at a stock exchange, who will perform the order of buying or selling.
Some of the exchanges have physical locations in which transactions are performed on a trading floor, by a method that is popular as open outcry. This auction type is used in commodity exchanges and stock exchanges in which traders can enter ‘oral’ bids and offers at the same time. The other stock exchange type is the virtual type which is composed of a computer network where trades are executed electronically.
A stock exchange is established to facilitate the securities exchange between buyers and sellers and these activities provide a marketplace whether it is virtual or physical. The actual trades are on the basis of an auction market model in which a buyer bids a certain price for a stock and a seller asks a certain price for the stock. If the bid and ask prices meet, then a trade takes place. If there are more than one bidder and asker, they are served on a basis of first come first served at a certain price.
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