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brokers and traders can buy and/or sell stocks (also called
shares), bonds, and other securities. Stock exchanges may also
provide facilities for issue and redemption of securities and other
financial instruments, and capital events including the payment of
income and dividends. Securities traded on a stock exchange include
stock issued by listed companies, unit trusts, derivatives, pooled
investment products and bonds. Stock exchanges often function as
"continuous auction" markets, with buyers and sellers
consummating transactions at a central location, such as the floor of
the exchange.[2]
To be able to trade a security on a certain stock exchange, it must
be listed there. Usually, there is a central location at least for record
keeping, but trade is increasingly less linked to such a physical
place, as modern markets use electronic networks, which gives them
advantages of increased speed and reduced cost of transactions.
Trade on an exchange is restricted to brokers who are members of
the exchange. In recent years, various other trading venues, such as
electronic communication networks, alternative trading systems and
"dark pools" have taken much of the trading activity away from
traditional stock exchanges.[3]
The initial public offering of stocks and bonds to investors is by
definition done in the primary market and subsequent trading is done
in the secondary market. A stock exchange is often the most important
component of a stock market. Supply and demand in stock markets
are driven by various factors that, as in all free markets, affect the
price of stocks (see stock valuation).
There is usually no obligation for stock to be issued via the stock
exchange itself, nor must stock be subsequently traded on the
exchange. Such trading may be off exchange or over-the-counter. This
is the usual way that derivatives and bonds are traded. Increasingly,
stock exchanges are part of a global securities market.
(1) Providing Liquidity and Marketability to Existing Securities:
Stock exchange is a market place where previously issued securities
are traded. Various types of securities are traded here on regular
basis.
Whenever required, an investor can invest his money through this
market into securities and can reconvert this investment into cash.
Availability of ready market for sale and purchase of securities
increases their marketability and enhances liquidity.
(2) Pricing of Securities:
A stock exchange provides platform to deal in securities. The forces
of demand and supply work freely in the stock exchange. In this
way, prices of securities are determined.
ADVERTISEMENTS:
(3) Safety of Transactions:
1
(1)
Citigroup
Caterpillar
Coca-Cola
Total
(2)
12
6
2
20
(3)
$6
$10
$30
Increase in %
Citigroup
Caterpillar
Coca-Cola
10%
15%
8%
Increase in $ (profit
per share)
$0.60
$1.50
$2.40
It is clear that John earned a good profit on that day, and our first question is
how many USDs on average did John earn per share that he owned?
There are three different pieces of data: $0.60, $1.50, and $2.40.
Another characteristic of each group is that all shares in each group have
been issued by the same company, as follows:
All of the shares that rose by$1.50 are Caterpillar shares.
All of the shares that rose by $0.60 are Citigroup shares.
All of the shares that rose by $2.40 are Coca-Cola shares.
We will present all of the data in a table:
Profit
Weight of
Number of
Names of per
the Group Contributio
Numberin
Individuals
the
share
(the
n of the
g of the
in Each
Companie in $
relative Group to the
Group
Group (the
s
(the
frequency Average
frequency)
value)
)
(1)
(2)
(3)
(4)
(5)
(6) = (3) x (5)
Group 1 Citigroup $0.60 12
60%
$0.36
Group 2 Caterpillar $1.50 6
30%
$ 0.45
Group 3 Coca-Cola $2.40 2
10%
$0.24
$1.05
average
Total
20
100%
profit per
share
The calculation shows (the bottom row of Column no. 6) that the average profit
per share was $1.05.
4
Conclusion
You can make a lot of money investing in stocks or trading in
the stock market, but it is not something for the new investors. Care
must be taken when it comes to stock investments. The investor
must have a solid understanding of stocks and how they trade in the
market or risk losing money in a volatile type of investment.
Lets review what weve learned in this tutorial:
Having stock in a company means you are an owner. How many
shares of stock you have determines the extent of that ownership.
As part owner, you receive dividends and have voting rights.
A stock represents equity, while a bonds is a debt. Bonds are lowrisk investment vehicles with guaranteed returns, while stocks
involves more risk. This is why stocks have a higher rate of return
compared to bonds.
In investing, the riskier the investment the bigger the chance of
making more money. Investing in stocks can make you lots of money
if you invest in the right company. However, you can lose all of it
too.
There are two main types of stocks: common and preferred. Stocks
can be further classified into different classes depending on the
company.
The stock market is a place where people go to trade stocks. Two of
the most important stock exchanges in the United States are the
NYSE and Nasdaq.
Purchase of stocks are commonly done through a brokerage. You can
also get a dividend reinvestment plan (DRIP).
Stocks are volatile. Prices change according to supply and demand.
Many people have different opinions on why stock prices move the
way they do. One of the most important factors that influence prices
is earnings.
Learning how to read stock tables or a stock quote is a must if you
are planning to be a serious investor in stocks. It is not hard to read
a stock quote once you know what the different terms and symbols
stand for.
Always remember the old stock market saying: Bulls make money,
bears make money, but pigs get slaughtered!. This will perhaps
save you many times from losing on your investment.
Opinion
There is no shortage of ways to invest money and supposed experts,
who will help you invest. But knowing what you are doing and
understanding the risks is of the utmost importance. Take the time
to find out as much as you can and use the useful advice from this
article to help you do it the right way. Do not blindly follow the
recommendations of your investment broker without doing some
due diligence of your own. Ensure that the investment is registered
6
with the SEC and find some background information on the way that
the investment has performed in the past. There have been
instances of fraud whereby the information presented by the broker
was fabricated. Pay less attention to the various market voices that
are trying to bombard you with data on price points. This will allow
you to gain more information on the performance of the companies
you currently invest in or plan to invest in, giving you the chance to
make smarter decisions. Keep in mind that the value of a stock
involves much more than simply its price. It is definitely possible for
an expensive stock to be undervalued, and for a stock that is worth
pennies to be severely overvalued. When deciding whether or not to
invest in a particular stock, there are several other factors to
consider that are more important. The price of a stock should be
only one small part of the decision. Information is vital to having
good management and decision-making skills for your stock
portfolio.
Reference
http://documents.tips/documents/stock-exchange-suggestion-thatwill-work-for-you.html#
http://www.yourarticlelibrary.com/stock-exchange/6-importantfunctions-of-stock-exchange/1062/
http://studypoints.blogspot.in/2011/03/functions-importance-or-roleof-stock_7383.html
http://www.globalfinanceschool.com/book/statistics/datapresentation-and-analysis-stock-exchange