A stock market typically refers to a financial market that handles the buying and selling of company stocks, derivatives and other securities. Stock markets trade company securities that are listed in the stock exchange
Investors and security issuers both participate in stock markets. Different sized entities participate in stock market activities, ranging from small investors to the governments, corporations, large hedge fund traders, and banks. Corporations, governments, and companies issue securities on the stock market to collect funds. The stock market acts as a platform for companies to raise money for their business and investors to invest in securities.
When both the buyers and sellers in stock markets are institutions, rather than individuals, the stock market principle is more institutionalized.
The emergence of this institutional investor concept has brought some improvements to stock market operations around the world.
Stock markets can exist in both real and virtual arenas. Stock exchanges with physical locations carry out stock trading on trading floor.
This method of conducting trading, where the traders enter verbal bids, is called open outcry. In virtual stock exchanges, trading is done online by traders who are connected to each other by a network of computers. In addition to acting as a market place for stock trading, stock markets also act as the clearinghouse for stock transactions.
This means that stock exchanges collect and deliver the securities and also guarantee payment to the seller.
This ensures both the buyers and sellers of securities that their counterparts will not default on the transaction.
Stock markets in various countries around the world have performed well due to financial sector reforms and integration. International flow of funds has raised the expertise of stock exchanges in the respective countries.
