What are stocks in the stock market?


What are stocks in the stock market?

nomi king 5 months 1 Answer 100 views

Answer ( 1 )

  1. Originally Answered: What happens in a stock market?
    Equity/Share/ Stock
    Equity is a stock or any other security representing an ownership interest.
    E.g. If you own 10 shares of a company which has 1000 outstanding shares, you own 1% (10*100/1000) stake in the company.
    Stock Exchange/ Stock market
    A stock exchange/market is a platform for the trading of securities like stock/ shares, and derivatives. A stock may betbought or sold only if it is listed on an exchange. Thus it is the meeting place of the stock buyers and sellers. The major stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) which are regulated by Security and Exchange Board of India (SEBI).
    Primary market
    Primary market is the market which deals with the issuance of new securities. Companies raise fund through this market by issuing shares or bonds. Primary market issues include:
    Initial Public Offerings (IPO): Initial Public Offer (IPO) is privately held company’s first sale of stock to the general public via a stock exchange. An IPO can generate funds for working capital, debt repayment, acquisitions, and a host of other uses.
    Rights Issue: A rights issue is when a company offers existing shareholders a right to purchase additional shares of the company at a given price, which is normally at a discount to the prevailing market price of the stock.
    Preferential Issue: A Preferential issue is an issue of stocks or of convertible securities through listed firms to a select number of person’s under Section 81 of the Companies Act, 1956 that is neither a public issue nor a rights issue. This is a speedier path for a firm to increase equity funds.
    Secondary market
    Secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. In the secondary market you purchase shares from other seller and not from the issuer of the share i.e. the company directly.
    E.g. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE)

    A stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An Index is calculated with reference to a base period and a base index value.
    Stock market indices are important because of following reasons:
    They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt.
    They can be used as a standard/benchmark to compare the performance of an equity fund.
    It is a lead indicator of the performance of the overall economy or a sector of the economy.

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