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These companies are what is referred to as a ‘listed company’ and have shareholders that have a limited number of shares that they can buy and sell at any time the markets are open.
The largest stock market in the world is the New York Stock Exchange, with a market cap of $28,528,761 million June 30[1] 2018!
Like any market, the aim of a stock market is to bring together those who wish to buy shares in a particular company, and those that wish to sell them.
Depending on the liquidity of the share, the ongoing performance of the company and future announcements the price of a share goes up and down, again, driven by the microeconomic factors of demand and supply.
To buy a stock, an investor through their online brokerage – such as CommSec, IG Markets, or ANZ Share Investing – can review the company’s performance. On the ASX all company shares on the stock market are denoted by three letters, for example Village Roadshow Limited is VRL.
On the ASX website, investors can type three letters and review all the company announcements, price performance and history to get a better understanding of where the company sits. Investors can also review the companies website, AGM or annual general meeting reports, financial press (financial review newspaper) and a range of other information sources (including professional investment advice) before putting an offer or ‘bid’ in on their share trading platform.
With a company selected, the buyer can select the price and quantity of the share they wish to purchase, and a date that the offer is valid until.
Buyers, on the other hand, can select the number of shares they wish to sell and the price at which they are looking to sell it at, then they wait until the ASX CHESS or Clearing House Electronic Sub-Register System can facilitate the trade between the buyer and sellers’ brokers[2].
[1] https://www.nyse.com/market-cap
[2] https://www.asx.com.au/documents/research/chess_brochure.pdf
Until companies are listed on stock markets – such as the ASX – they are private companies and are not required to make their financial reporting information public.
Once a company ‘lists’ or ‘floats’ through the process of an IPO or initial public offering, companies must report in an extremely formalised, transparent and accountable their financial performance as well as their underlying activities and performance so that shareholders can see how their invested money is being put to use and detailed info on performance.
While funding is only one side, the other side is people with any money to invest, the stock market offers them a place of invest in companies, listed finds and other financial instruments to profit or hedge their investment portfolios for future financial benefit.
Even people in Australia who are not ‘active’ investors but are employed in Australia are investors in the Australian Stock market or ASX – many without even knowing it.
Superannuation account holders are similar to managed fund holders – except the fund cannot be accessed until the account holder’s retirement in the case of superannuation. Superannuation takes mandatory contributions from employers and places it in a managed fund account, which is invested as the accountholder stipulated within the risk profile of the super fund selected.
Most of the super accounts, apart from the extremely low-risk funds that invest in property or bonds, would be actively investing in the stock market on behalf of their clients.
The Nasdaq, beginning in the 1970s started out as the National Association of Securities Dealers Automated Quotations or a system that provided quotations for the market.
It was the world’s first electronic stock market and their technology was used to set up the electronic platforms for many of the worlds other platforms including that of the NY Stock Exchange.[1]
However, when 2006 came around and the SEC granted approval to register as a national securities exchange and it went onwards from there. Today the Nasdaq has grown into a global leader, taking full advantage of technological advances to bill itself as a natural home for high-tech companies seeking to list their shares. Some of the largest companies in the world are primarily listed on the Nasdaq, validating its place in the financial world.[2]
Today, some of the largest companies in the world, apple, Alphatbet Inc (Google), Microsoft, Facebook, Cisco and Intel are all listed on the Nasdaq exchange.
Outside of the USA, there is the Tokyo Stock Exchange, the Shanghai Stock Exchange, Hong Kong Stock Exchange and London Stock Exchange all of which are huge in size and scale and servicing their respective host markets and the companies listed upon them.
Global stock markets play a vital role in keeping the companies that are listed upon them around the world funded, accountable and viable for the future. They provide a mechanism for superannuation and retirement funds to invest and grow significantly over long periods.
Stock markets have also provided companies not only with access to funding but financial institutions access to bring the markets down around them when governments have deregulated markets. The 2008 financial crisis was in large part thanks for the stock market in the US.
With the heavy reliance on housing and the previously held notion that ‘housing can’t fail’, deregulation saw unscrupulous lending activities, exposing individual homeowners without the means to pay their mortgages. This crisis exposed the banks that held the mortgage, the holders of the CDS or credit default swap where the banks packaged up these mortgages and sold them on the markets as securities to investors.
When it all came tumbling down, several banks closed their doors, millions of people lost their homes, over $12 trillion wiped from global markets all thanks to the stock market offering opportunity for some to prosper.
In the end, the taxpayer had to bail everyone out and people lost everything. The stock market is a beautiful financial instrument, providing endless opportunities to prosper, diversify, trade and invest. If you’re looking to enter the marketing do so with care and careful consideration, and always work to a personal financial plan and invest what you can afford to lose, as we never know when another 2008 may come around next.
[1] https://www.finra.org/investors/nyse-nasdaq-and-get-know-uss-stock-exchanges-part-1
[2] https://www.fool.com/knowledge-center/what-is-the-nasdaq.aspx
