A stock exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities.
5.2-Introduction of New York Stock Exchange:
A stock exchange, (formerly a securities exchange) is a corporation or mutual organization 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 traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks.
The NYSE has come a long way since 1792, when 24 brokers and merchants signed the historic "Buttonwood Agreement" to trade a handful of securities on New York's Wall Street. In the more than two centuries that have followed, the New York Stock Exchange has continued to adapt and evolve into the world's largest global equities marketplace. The NYSE has remained unwavering in its commitment to customers and to building a truly global marketplace with great breadth of product and geographic reach. Its mission is to add value to the capital-raising and asset-management process by providing the highest-quality and most cost-effective marketplace for the trading of financial instruments, to promote confidence in and understanding of that process, and to serve as a forum for discussion of relevant national and international policy issues. The NYSE is one of two U.S. securities exchanges the NYSE Group Inc. operates.
Chapter No.5
5.3-Types of Stocks:
The two main categories of stocks are common stock and preferred stock. Preferred stockholders have priority over common stockholders in terms of dividend payout and in recouping their investment if the company fails or liquidates. However, preferred stockholders, unlike common stockholders, cannot vote for directors of the company. There are five basic categories of stock:
Defensive Stocks
Cyclical Stocks
Income Stocks
Blue-Chip Stocks
Explanations of these stocks are given below:
Defensive Stocks
Defensive stocks issued by companies producing staples such as food, beverages, drugs and insurance typically maintain their value during recessionary periods.
Cyclical Stocks
The prices of these stocks tend to go down during recessionary periods and increase during economic booms. Examples of cyclical stock companies include automobile, heavy machinery and home building.
Income Stocks
Income Stocks pay unusually large dividends that can be used as a means of generating income without selling the stock, but the price of the stock generally does not rise very quickly.
Blue-Chip Stocks
Blue-Chip Stocks are issued by very solid and reliable companies with long histories of consistent growth and stability. Blue-chip stocks usually pay small but regular dividends and maintain a fairly steady price throughout market ups and downs.
Chapter No.5
5.4-Top stock exchange in the world:
Twenty Major Stock Exchanges In The World: Market Capitalization & Year-to-date Total Turnover at the end of May 2009
Region
Stock Exchange
Market Value
(millions USD)
Total Share Turnover
(millions USD)
Africa
Johannesburg Securities Exchange
605,040.2
117,424.7
Americas
NASDAQ
2,773,684.3
12,256,704.3
Americas
São Paulo Stock Exchange
920,263.9
191,926.1
Americas
Toronto Stock Exchange
1,347,674.0
490,912.4
Americas
New York Stock Exchange
9,574,066.6
7,986,835.8
Asia-Pacific
Australian Securities Exchange
839,062.7
273,205.9
Asia-Pacific
Bombay Stock Exchange
1,032,589.6
83,906.6
Asia-Pacific
Hong Kong Stock Exchange
1,773,002.2
519,465.7
Asia-Pacific
Korea Exchange
640,357.6
618,607.8
Asia-Pacific
National Stock Exchange of India
968,815.1
242,641.7
Asia-Pacific
Shanghai Stock Exchange
2,069,937.1
1,685,862.2
Asia-Pacific
Shenzhen Stock Exchange
563,103.3
880,744.6
Asia-Pacific
Tokyo Stock Exchange
3,102,492.9
1,561,888.8
Europe
Euro next
2,262,751.6
742,885.6
Europe
Frankfurt Stock Exchange (Deutsche Börse)
1,132,126.2
1,101,064.6
Europe
London Stock Exchange
2,204,320.0
1,483,263.3
Europe
Madrid Stock Exchange (Bolsas y Mercados Españoles)
1,084,606.4
591,217.3
Europe
Milan Stock Exchange (Borsa Y Italiana)
554,613.9
341,421.1
Europe
Nordic Stock Exchange Group OMX1
664,465.8
319,398.1
Europe
Swiss Exchange
854,369.0
272,201.5
Chapter No.5
5.5 New York Stock Exchange Market:
The NYSE blends the best aspects of electronic trading and traditional, open-outcry, auction market trading. Buyers and sellers meet directly in a fair, open and orderly market to compete for the best possible price through the interplay of supply and demand. At the NYSE, investors have the broadest choice of trade-execution preferences with the opportunity for price improvement. The NYSE has long been the leader in providing the best prices and lowest trading costs. Its unique market model allows it to accomplish this. To be able to trade securities on the Trading Floor, an Exchange-issued trading license is required. Only qualified and approved NYSE broker-dealer entities may acquire and hold trading licenses. Most of those holders are either floor brokers or specialists.
5.6-Mutual Funds in Stock Exchange:
The most common way for individuals to invest in the stock market is through mutual funds. Mutual funds pool money from all their investors and buy different stocks with it. The risk and reward from all of the stocks is shared by all of the investors. This is a way for investors to diversify their risk and own many stocks with not a lot of money. There are all kinds of mutual funds, including index funds that track market segments, and more specialized funds that invest in a certain industry or use a certain strategy. Many people invest through their employer through 401(k) retirement accounts, which generally allow employees to choose from a list of funds.
5.7-Exchange Trading Funds:
An Exchange Traded Fund (ETF) is an index fund representing a basket of stock that trades on an exchange throughout the day and are bought and sold like common stocks with continuous pricing (compared with mutual funds, which are bought and sold at the end of the trading day at their end-of-day net asset value [NAV]). Investors get the advantages of trading a diversified "basket" of stocks that reflects the performance of a market index, industry, sector, style or region all in one security. They also offer diversified exposure and lower expense ratios than traditional mutual funds.
Chapter No.5
5.8-Options:
An option is a contract to buy or sell a specific financial product, which is called the option's underlying instrument or underlying interest. For equity options, the underlying instrument is a stock, ETF or similar product. The contract itself is very precise. It establishes a specific price, called the strike price, at which the contract may be exercised. And it has an expiration date. When an option expires, it no longer has value and no longer exists. Options are most frequently used to remove market risk in owning or trading in an individual security or market segment.
5.9-How To Read A Stock Table:
The table below shows a sample stock table. Each item gives you some clues about the current state of affairs for a particular company.
52-Wk High
52-Wk Low
Name (Symbol)
Div
Vol
Yld
P/E
Day Last
Net Chg
21.50
8.00
SkyHighCorp (SHC)
3143
76
21.25
+.25
47.00
31/75
LowDownInc (LDI)
2.35
2735
5.7
18
41.00
-.50
25.00
21.00
ValueNowInc (VNI)
1.00
1894
4.5
12
22.00
+.10
83.00
33.00
DoinBadlyCorp (DBC)
7601
33.50
-.75
Here's what each column means:
52-week high: This column gives you the highest price that particular stock has reached in the most recent 52-week period.
Chapter No.5
52-week low: This column gives you the lowest price that particular stock has reached in the most recent 52-week period.
Name and symbol: This column tells you the company name (usually abbreviated) and the stock symbol assigned to it.
Dividend: A value in this column indicates that payments have been made to stockholders. The amount you see is the annual dividend quoted as if you owned one share of that stock.
Volume: This column tells you how many shares of that particular stock were traded that day. If only 100 shares are traded in a day, the trading volume is 100.
Yield: This column refers to what percentage that particular dividend is to the stock price. Yield, which is most important to income investors, is calculated by dividing the annual dividend by the current stock price.
P/E: This column indicates the ratio between the price of the stock and the company's earnings. This ratio (also called the earnings multiple or just multiple) is frequently used to determine whether a stock is a good value.
Day last: This column tells you how trading ended for a particular stock on the day represented by the table. Some newspapers report the high and low for that day in addition to the stock's ending price.
Net change: This column answers the question "How did the stock price end today compared with its trading price at the end of the prior trading day?
