Apr. 26th 2015
A stock market, also referred to as the equity market or stock exchange, is an aggregation of traders who interact to buy and sell stocks (also known as shares) of different companies. Stock market deals with shares of companies that are publicly listed on the stock exchange.
How do Stock Markets Work?
The mechanism of a stock market is similar to any other market in the majority of the aspects: there are two parties, one buyer and the other seller, a stock which is traded and an agreed price. However, since the volume of stock markets is generally very large, deals are effectuated by brokers who facilitate the exchange and charge their own commission on every trade deal executed.
An investor in the stock market can range from the small investor who is interested in only a limited portfolio of shares, to large institutional investors (such as mutual funds, banks, insurance companies and hedge funds) who manage billion dollars of portfolio on behalf of others. The beauty of the stock market is that unlike other markets, an investor does not have to be physically present at the market in order to trade. The investor’s physical presence is completely irrelevant as the majority of the deals are communicated and executed over the phone or via the internet through the broker or investment manager.
World Stock Markets
Globally, almost every large nation has a stock market. India alone has 30 different forms of stock markets. However, in terms of market capitalisation (a business term used to describe the total dollar value of the shares outstanding of a company), the New York Stock Exchange is the largest. Here are the top 5 stock markets by capitalization. Each of them deals in their own currencies and operates on their own schedule:
- New York Stock Exchange (market capitalisation of USD 19, 223 billion)
- NASDAQ (based in New York) (market capitalisation of USD 6,831 billion)
- London Stock Exchange (market capitalisation of USD 6, 187 billion)
- Japan Stock Exchange (market capitalisation of USD 4,485 billion)
- Shanghai Stock Exchange (market capitalisation of USD 3,986 billion)
Note: All market capitalizations are as at 31 January 2015.
All stock markets use a base currency, which is generally the local currency, to decide on the price of shares to be bought and sold. However, with increased globalization, people from across the globe can trade in stock markets foreign to their country and in order to make easy comparison and facilitate quick decision making, all stock markets have a published capitalisation amount in US dollars.
Irrespective of the size or capitalization of market, the purpose of all world stock markets is to provide a common ground to buyers and sellers and facilitate the easy exchange of stocks. No matter if one wants to buy a particular stock, sell off current investments or receive dividends, the stock market is the place to be.