Stock market refers to marketing environment whereby issuing and subsequent trading of shares and securities takes place (Wyss 12). The market is also referred to as equity market and it is very crucial in economic growth bearing in mind that by issuing specific percentage of their shares to investors, companies are able to raise the much needed capital to facilitate growth and expansion (Wyss 16).
The term stock market does not necessarily refer to a specific place (Wyss 18). However, stock exchange market such as the New York Stock Exchange and other exchanges around the world are situated in specific locations.
On the same note, stock market provides a platform through which individuals can buy or sell stocks, bonds and securities. Wyss (18) elucidates that there are several securities which are traded in stock markets such as shares, derivatives, unit trusts and bonds. Most stocks are sold or bought through stock exchanges which are either physical or virtual. At physical exchanges, buyers and sellers decide on pricing level through an auction method which is moderated by a specialist (Wyss 64).
The final price is arrived at by establishing an equilibrium price whereby both buyers and sellers are willing to make a transaction (Wyss 72). Once an equilibrium price is reached, a transaction is concluded. A similar situation is experienced in virtual exchanges. The only difference is that in virtual exchanges, dealers are interlinked digitally. Moreover, brokerage dealers regulate the stock market through continuous bids which are within a certain price range (Wyss 66).
Additionally, Wyss (28) distinguishes between two types of stock market namely primary and secondary. The primary market is whereby companies issue their securities for sale to the public in the stock market through Initial Public Offer (IPO) (Wyss 28).
On the other hand, subsequent trading of previously- issued securities by investors is referred to as secondary market (Wyss 28). On the other hand, primary market trading is a onetime event but secondary market is the core of stock market since it is continuous almost on a daily basis (Wyss 29).
Prices in the stock market fluctuate every minute and it is imperative for traders to establish how shares are performing at certain times (Wyss 66). This is accomplished by use of stock indexes such as Dow Jones and S&P500 shares. These two companies occupy significant position in New York Stock Exchange since their share prices act as an index upon which average share prices of other major companies are determined.
For this reason, news on stock exchange performance cannot be complete without reporting ont the index level (Baden par.6). On the other hand, NASDAQ is a virtual stock exchange and it is very significant in business news since brokerages at this exchange are market makers and their role is vital in determining share prices of various stocks (Baden par.4).
There are two methods that an investor can utilize to buy or sell stocks. Firstly, he/she can go through a brokerage firm whereby an investor advices a firm to buy or sell shares at an agreed price (Wyss 65).
However, different brokerage firms charge varied fees for this service. Secondly, some companies allow existing shareholders to purchase direct stocks via Dividend Reinvestment Plan (DRIPS) and Direct Investment Plans (DIPS) (). However, the firms method is the most common avenue that enable buying and selling of stocks (Wyss 67).
The stock market has undergone tremendous changes since 2009. Owing to the global economic recession, stock markets have been hard hit leading to stock crash that saw most equities reach an all time low (Baden par.2 ).
However, 2011 looks promising for stock markets owing to the fact that investors are regaining their trust in stock funds especially bonds (Baden par.12). Apparently, the global economic situation is slowly improving and investors are quick to make transition from saving their money in banks to investing in stocks due to expected high returns in forms of dividends (Baden par. 12).
In a nutshell, age does not matter in stock market investment. However, beginning early is preferable. Although most states require individuals to be at least 18 years before they can own a stock market investment account, this should not be a hindrance to begin investment since as long one is able to understand the complexities of stock trading, he or she can utilize a custodial account until the right age. As a matter of fact, early investment equips individuals with the much needed skills to accelerate financial freedom in future.
Baden, Ben. Why Big U.S. Stocks Look Like a Good Bet; S&P 500 companies are on track to report record earnings in the second half of 2011. 16 Feb. 2011. 09 Sept. 2011. Web.
Wyss, O’Neill. Fundamentals of the stock market. New York: McGraw-Hill Professional, 2000. Print.