A stock market or equity market is a public market A market system is any systematic process enabling many market players to bid and ask: helping bidders and sellers interact and make deals. It is not just the price mechanism but the entire system of regulation, qualification, credentials, reputations and clearing that surrounds that mechanism and makes it operate in a social context (a loose network of economic transactions not a physical facility or discrete entity) for the trading Trade is the voluntary, often asymmetric, exchange of goods, services, or money. Trade is also called commerce or transaction. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals , bill, paper money. Modern of company A corporation is an institution that is granted a charter recognizing it as a separate legal entity having its own privileges, and liabilities distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business stock The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in and derivatives A derivative, in non-financial-expert terms, is an agreement or contract that is not based on a real, or true, exchange, i.e.: There is nothing tangible like money, or a product, that is being exchanged. For example, a person goes to the grocery store, exchanges a currency for a commodity (say, an apple). The exchange is complete, both parties at an agreed price; these are securities A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities and equity securities, e.g., common stocks; and derivative contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's regulatory listed on a stock exchange A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008.^[1] The total world derivatives market has been estimated at about $791 trillion face or nominal value,^[2] 11 times the size of the entire world economy.^[3] The value of the derivatives market, because it is stated in terms of notional values The notional amount on a financial instrument is the nominal or face amount that is used to calculate payments made on that instrument. This amount generally does not change hands and is thus referred to as notional, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value In the property and casualty insurance industry, Actual Cash Value is a method of valuing insured property. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring.). Many such relatively illiquid securities are valued as marked to model Mark-to-Model refers to the practice of pricing a position or portfolio at prices determined by financial models, in contrast to allowing the market to determine the price. Often the use of models is necessary where a market for the financial product is not available, such as with complex financial instruments. One shortcoming of Mark-to-Model is, rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The stock market in the United States is NYSE The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$12.25 trillion as of May 2010. Average daily trading value was approximately US$153 billion in 2008 while in Canada, it is the Toronto Stock Exchange The Toronto Stock Exchange , a subsidiary of the TMX Group Inc., is the largest stock exchange in Canada, the third largest in North America and the eighth largest in the world by market capitalization. Based in Canada's largest city, Toronto, it is owned and operated by TMX Group for the trading of senior equities. A broad range of businesses. Major European examples of stock exchanges include the London Stock Exchange The London Stock Exchange is a stock exchange located in London, United Kingdom. As of end-June 2010, the Exchange had a market capitalisation of US$2.4 trillion, making it the fourth largest stock exchange in the world and the largest in Europe, Paris Bourse Coordinates: 48°52′09″N 2°20′29″E / 48.86917°N 2.34139°E The Paris Bourse is the historical Paris stock exchange, known as Euronext Paris from 2000 onwards, and the Deutsche Börse Deutsche Börse AG is a marketplace organizer for the trading of shares and other securities. It also is a transaction services provider. It gives companies and investors access to global capital markets. It is a joint stock company and was founded in 1993. The headquarters are in Frankfurt, Germany. Asian examples include the Tokyo Stock Exchange The Tokyo Stock Exchange , called Tōshō (東証?) or TSE for short, is located in Tokyo, Japan and is the second largest stock exchange in the world by aggregate market capitalization of its listed companies, second only to the New York Stock Exchange. The Tokyo Stock Exchange had 2,414 listed companies with a combined market capitalization of, the Hong Kong Stock Exchange The Hong Kong Stock Exchange is the stock exchange of Hong Kong. The exchange has predominantly been the main exchange for Hong Kong where shares of listed companies are traded. It is Asia's second largest stock exchange in terms of market capitalisation, behind the Tokyo Stock Exchange. As of 31 December 2007, the Hong Kong Stock Exchange had 1,24,the Bombay Stock Exchange The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly called Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia and has the third largest number of listed companies in the world, with 4700 listed as of August 2007. It is located at Dalal Street, Mumbai, India. On 31 December 2007, the equity market and the Karachi Stock Exchange The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh, Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV The Mexican Stock Exchange (in Spanish: Bolsa Mexicana de Valores, BMV) is Mexico's only stock exchange. It is headquartered on the prestigious Paseo de la Reforma in central Mexico City. It is the second largest stock exchange in the Latin America after Brazil's BM&F Bovespa. The total value of the Mexican Stock Exchange is estimated to be.

Trading

Participants in the stock market range from small individual stock investors A stock trader or a stock investor is an individual or firm who buys and sells stocks or bonds in the financial markets to large hedge fund A hedge fund is an investment fund open to a limited range of investors that undertakes a wider range of investment and trading activities than traditional long-only investment funds, and that, in general, pays a performance fee to its investment manager. Every hedge fund has its own investment strategy that determines the type of investments and traders In finance, a trader is someone who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry Open outcry is the name of a method of communication between professionals on a stock exchange or futures exchange which involves shouting and the use of hand signals to transfer information primarily about buy and sell orders. The part of the trading floor where this takes place is called a pit. This type of auction is used in stock exchanges and commodity exchanges A commodities exchange is an exchange where various commodities and derivatives products are traded. Most commodity markets across the world trade in agricultural products and other raw materials and contracts based on them. These contracts can include spot prices, forwards, futures and options on futures. Other sophisticated products may include where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.

Actual trades are based on an auction market An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace A marketplace is the space, actual, virtual or metaphorical, in which a market operates. The term is also used in a trademark law context to denote the actual consumer environment, ie. the 'real world' in which products and services are provided and consumed (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$12.25 trillion as of May 2010. Average daily trading value was approximately US$153 billion in 2008 is a physical exchange, also referred to as a listed exchange — only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker A floor broker is an independent member of an exchange who can act as a broker for other members who become overloaded with orders, as an agent on the floor of the exchange. The floor broker receives an order via teletype machine from his firm's trading department and then proceeds to the appropriate trading post on the exchange floor. There he, who goes to the floor trading post specialist The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$12.25 trillion as of May 2010. Average daily trading value was approximately US$153 billion in 2008 for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread The bid/offer spread for securities (such as stock, futures contracts, options, or currency pairs) is the difference between the price quoted by a market maker for an immediate sale (bid) and an immediate purchase (ask). The size of the bid-offer spread in a given commodity is a measure of the liquidity of the market and the size of the exists, no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$12.25 trillion as of May 2010. Average daily trading value was approximately US$153 billion in 2008" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading Program trading is a generic term used to describe a type of trading in securities, usually consisting of baskets of fifteen stocks or more".

The NASDAQ The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations," but the exchange's official stance is that the acronym is obsolete. It is the largest electronic screen-based equity securities trading market in the is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets. In foreign exchange trading, where most deals are conducted over-the-counter and are, therefore, completely virtual, the market maker sells to and buys from its clients and is compensated by means of price differentials and for the will always provide a bid and ask price at which they will always purchase or sell 'their' stock.^[4]

The Paris Bourse Coordinates: 48°52′09″N 2°20′29″E / 48.86917°N 2.34139°E The Paris Bourse is the historical Paris stock exchange, known as Euronext Paris from 2000 onwards, now part of Euronext Source:"euronext.com". http://www.euronext.com/trader/indicescomposition/composition-4411-EN-FR0003502079.html?selectedMep=1&idInstrument=22218, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors. A broker may be employed by a brokerage firm met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.

From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.^[5]

Now that computers have eliminated the need for trading floors like the Big Board The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, New York, USA. It is the largest stock exchange in the world by United States dollar value of its listed companies' securities. As of October 2008, the combined capitalization of all domestic NYSE listed companies was US$10.1 trillion's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers A broker is a party that mediates between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Distinguish agent: one who acts on behalf of a principal pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions as well as the surplus of the century had taken place.^{[citation needed]}.

Market participants

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a pension plan for the exclusive purpose of financing pension plan benefits.[citation needed], insurance companies Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured or policyholder is the person or, mutual funds A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities . The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective. In the U.S., a fund registered with the, index funds An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions, exchange-traded funds An exchange-traded fund (also known as Exchange-Traded Product (ETP)) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&, hedge funds A hedge fund is an investment fund open to a limited range of investors that undertakes a wider range of investment and trading activities than traditional long-only investment funds, and that, in general, pays a performance fee to its investment manager. Every hedge fund has its own investment strategy that determines the type of investments and, investor groups, banks Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries and various other financial institutions In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries. Most financial institutions are highly regulated by government). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large institutions.^{[citation needed]})

However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee') institutional 'owners'.^{[citation needed]}

History

In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred;^[6] the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first share on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them".^[7] There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, United Kingdom, Japan, India, China, Canada, Germany, France, South Korea and the Netherlands.^[8]

Importance of stock market

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