what is stock exchnge?

history of money

2009-01-21T15:50:00.005+05:00

HISTORY OF MONEY

Money is anything that is commonly accepted by a group of people for the exchange of goods, services, or resources. Every country has its own system of coins and paper money.

Bartering and Commodity Money

In the beginning, people bartered. Barter is the exchange of a good or service for another good or service, a bag of rice for a bag of beans. However, what if you couldn't agree what something was worth in exchange or you didn't want what the other person had. To solve that problem humans developed what is called commodity money.

A commodity is a basic item used by almost everyone. In the past, salt, tea, tobacco, cattle and seeds were commodities and therefore were once used as money. However, using commodities as money had other problems. Carrying bags of salt and other commodities was hard, and commodities were difficult to store or were perishable.

Coins and Paper Money

Metals objects were introduced as money around 5000 B.C. By 700 BC, the Lydians became the first in the Western world to make coins. Countries were soon minting their own series of coins with specific values. Metal was used because it was readily available, easy to work with and could be recycled. Since coins were given a certain value, it became easier to compare the cost of items people wanted.

Some of the earliest known paper money dates back to China, where the issue of paper money became common from about AD 960 onwards.

Representative Money

With the introduction of paper currency and non-precious coinage, commodity money evolved into representative money. This meant that what money itself was made of no longer had to be very valuable.

Representative money was backed by a government or bank's promise to exchange it for a certain amount of silver or gold. For example, the old British Pound bill or Pound Sterling was once guaranteed to be redeemable for a pound of sterling silver.

For most of the nineteenth and twentieth centuries, the majority of currencies were based on representative money through the use of the gold standard.

Fiat Money

Representative money has now been replaced by fiat money. Fiat is the Latin word for "let it be done". Money is now given value by a government fiat or decree, in other words enforceable legal tender laws were made. By law the refusal of "legal tender" money in favor of some other form of payment is illegal.

$$$

The origin of the "$" money sign is not certain. Many historians trace the $ money sign to either the Mexican or Spanish "P's" for pesos, or piaster’s, or pieces of eight. The study of old manuscripts shows that the "S," gradually came to be written over the "P," looking very much like the "$" mark.

U.S. Money Trivia

On March 10, 1862 the first United States paper money was issued. The denominations were $5, $10, and $20. They became legal tender by Act of March 17, 1862. The inclusion of "In God We Trust" on all currency was required by law in 1955. The national motto first appeared on paper money in 1957 on $1 Silver Certificates, and on all Federal Reserve Notes beginning with Series 1963.

stockexchange01.blogspot.com

2009-01-20T17:48:00.001+05:00

basic rules for investment

2009-01-20T15:41:00.007+05:00

The Basic Investing Rules

It is very easy to jump into stock investment bandwagon following others to make money, but without strong investment philosophy straight from beginning, it is quite difficult for you to be successful. Not only in stock market but in any investment decision you ever do.

It takes me years after investing in stock market to discover these basic investing rules. It is not my intention to impose new rules to investing, but you'll be on the winning side if you know the basic rule of the game.

Basic Investing Rules 1: Investing Needs Money

Companies are approaching bankers, wealthy individuals and public investors asking for money. Therefore, only capable investors (at least have the money) should invest in the stock market. Though not the fastest way, saving money is the easiest method to accumulate wealth.

How much money will you be saving is depend on your financial goals, income capability and time availability. I myself allocate 30 to 50 per cent of my salary as a 'forced saving' to expand my investment muscle. Find out how much you should save from my retirement planning step by step guide.

Latest US surveys found that more than 50 per cent of the population is expending more than what they earned. Make sure you are not one of them! Basic Investing Rules 2: Start Investing Only If Enough Money Having money to invest is just not enough. After all, you aren't going to invest with your medical fund are you? Lying at home without proper medication just because you'd lost the money in the stock market should be the last thing you ever want to be happened.

Under normal circumstances, you should not seriously consider investing unless you had satisfied at least one of the three following conditions:

You have six months income worth in savings.
Your current assets equal to your current liabilities.
You have just acquired a sudden windfall or inheritance, which should be thought as capital and not as current income.

Basic Investing Rules 3: Know How Much Money to Invest Greedy stock traders risking ALL their money in stock market, but smart stock investors invest within their surplus in savings. It is just a common sense, but you will be amazed on how investors around you get greedy when stock market appear to be very bullish.

I let six months worth expenses all the time in my bank account. In case the market turn against me, I'm not panic like other investors do. In fact, I will take advantage from this market inefficiencies to double my return by buying undervalued shares, while continue living my own life!

Basic Investing Rules 4: Have Investing Goals Understanding your objectives is the major part of successful investing, and many don't have them since the very first day they start investing.

Ask yourself, do you invest:

For short-term, medium-term or long-term?
For your kids' education, buying new homes or for retirement?
For income (dividend) or for growth (capital appreciation)?

Specific goals can direct you to specific investment plans. Having definitive investment plans will then make your stock investment practice much easier. More importantly, you are not influenced by the crowd; not easily tempered by the bull market and not panic in bear market. Basic Investing Rules 5: Aware of the Associated Risk There are always risks in investment. In stock market, the risks include:

Individual Financial risk.
Probability that you went broke, either because you lose your jobs or businesses. You didn't know when you get fired due to downsizing or business went down due to stiff competitions.
Companies Business risk.
Probability that the companies that you invest in went down either due to stiff competitions, mistakes in business directions or corruptions in it's own management.
Stock Market risk
Sometimes, the stock you invest in has nothing wrong but because the market sentiment went down, will also effect the price of your stock.

Risk is everywhere.

In stock investment, it is not about avoiding risks that matters, but rather reduce the risks to the lowest level right from the dollar you cash in till the dollar you cash out.

Though all the basic investing rules are really that basic, don't take it lightly when it comes to money. Strictly follow the rules, and the money is yours.

The Bulls, The Bears And The Farm

2009-01-17T00:04:00.006+05:00

On Wall Street, the bulls and bears are in a constant struggle. If you haven't heard of these terms already, you undoubtedly will as you begin to invest.

The Bulls
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".

The Bears
A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

The Other Animals on the Farm - Chickens and Pigs
Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk,

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?
There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig.

Make sure you don't get into the market before you are ready. Be conservative and never invest in anything you do not understand. Before you jump in without the right knowledge, think about this old stock market saying:

"Bulls make money, bears make money, but pigs just get slaughtered!"

What Causes Stock Prices To Change?

2009-01-14T16:45:00.004+05:00

Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. There are many answers to this problem and just about any investor you ask has their own ideas and strategies.

That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth. Don't equate a company's value with the stock price. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. For example, a company that trades at $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million). To further complicate things, the price of a stock doesn't only reflect a company's current value, it also reflects the growth that investors expect in the future.

The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Wall Street watches with rabid attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a company's results surprise (are better than expected), the price jumps up. If a company's results disappoint (are worse than expected), then the price will fall.

Of course, it's not just earnings that can change the sentiment towards a stock (which, in turn, changes its price). It would be a rather simple world if this were the case! During the dotcom bubble, for example, dozens of internet companies rose to have market capitalizations in the billions of dollars without ever making even the smallest profit. As we all know, these valuations did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, the fact that prices did move that much demonstrates that there are factors other than current earnings that influence stocks. Investors have developed literally hundreds of these variables, ratios and indicators. Some you may have already heard of, such as the price/earning ratio, while others are extremely complicated and obscure with names like chaickin oscilator or moving average convergence divergence.

So, why do stock prices change? The best answer is that nobody really knows for sure. Some believe that it isn't possible to predict how stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know is that stocks are volatile and can change in price extremely rapidly.

The important things to grasp about this subject are the following:

1. At the most fundamental level, supply and demand in the market determines stock price.
2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless.
3. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices.
4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.

Different Types Of Stocks

2009-01-04T17:09:00.006+05:00

There are two main types of stocks: common stock and preferred stock.

Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to this type. In fact, the majority of stock is issued is in this form. We basically went over features of common stock in the last section. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. Over the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with the same voting rights. (This may vary depending on the company.) With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium). Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock
Common and preferred are the two main forms of stock; however, it's also possible for companies to customize different classes of stock in any way they want. The most common reason for this is the company wanting the voting power to remain with a certain group; therefore, different classes of shares are given different voting rights. For example, one class of shares would be held by a select group who are given ten votes per share while a second class would be issued to the majority of investors who are given one vote per share. When there is more than one class of stock, the classes are traditionally designated as class A and class B. Berkshire Hathaway (ticker: BRK), has two classes of stock. The different forms are represented by placing the letter behind the ticker symbol in a form like this: "BRKa, BRKb" or "BRK.A, BRK.B".

option

2009-01-01T23:26:00.005+05:00

What Is An Option

A stock option is a contract which conveys to its holder the right, but not the

obligation, to buy or sell shares of the underlying security at a specified price on or

before a given date. This right is granted by the seller of the option.

There are two types of options, calls and puts. A call option gives its holder the right to

buy an underlying security, whereas a put option conveys the right to sell an

underlying security. For example, an American-style XYZ Corp. May 60 call entitles

the buyer to purchase 100 shares of XYZ Corp. common stock at $60 per share at any

time prior to the option's expiration date in May. Likewise, an American-style XYZ

Corp. May 60 put entitles the buyer to sell 100 shares of XYZ Corp. common stock at

$60 per share at any time prior to the option's expiration date in May.

Underlying Security

The specific stock on which an option contract is based is commonly referred to as the

underlying security. Options are categorized as derivative securities because their

value is derived in part from the value and characteristics of the underlying security. A

stock option contract's unit of trade is the number of shares of underlying stock which

are represented by that option. Generally speaking, stock options have a unit of trade

of 100 shares. This means that one option contract represents the right to buy or sell

100 shares of the underlying security.

Strike Price

The strike price, or exercise price, of an option is the specified share price at which the

shares of stock can be bought or sold by the holder, or buyer, of the option contract if

he exercises his right against a writer, or seller, of the option. To exercise your option

is to exercise your right to buy (in the case of a call) or sell (in the case of a put) the

underlying shares at the specified strike price of the option.

The strike price for an option is initially set at a price which is reasonably close to the

current share price of the underlying security. Additional or subsequent strike prices

are set at the following intervals: 2.5 points when the strike price to be set is $25 or

less; 5-points when the strike price to be set is over $25 through $200; and 10-points

when the strike price to be set is over $200. New strike prices are introduced when the

price of the underlying security rises to the highest, or falls to the lowest, strike price

currently available. The strike price, a fixed specification of an option contract, should

not be confused with the premium, the price at which the contract trades, which

fluctuates daily. If the strike price of a call option is less than the current market price

of the underlying security, the call is said to be in-the-money because the holder of this

call has the right to buy the stock at a price which is less than the price he would have

to pay to buy the stock in the stock market. Likewise, if a put option has a strike price

that is greater than the current market price of the underlying security, it is also said to

be in-the-money because the holder of this put has the right to sell the stock at a price

which is greater than the price he would receive selling the stock in the stock market.

The converse of in-the-money is, not surprisingly, out-of-the-money If the strike price

equals the current market price, the option is said to be at the-money.

Premium

Option buyers pay a price for the right to buy or sell the underlying security. This price

is called the option premium. The premium is paid to the writer, or seller, of the

option. In return, the writer of a call option is obligated to deliver the underlying

security (in return for the strike price per share) to an option buyer if the call is

exercised and, likewise, the writer of a put option is obligated to take delivery of the

underlying security (at a cost of the strike price per share) from an option buyer if the

put is exercised. Whether or not an option is ever exercised, the writer keeps the

premium. Premiums are quoted on a per share basis. Thus, a premium of 7/8

represents a premium payment of $87.50 per option contract ($0.875 x 100 shares).

New York Stock Exchange

2008-12-29T18:39:00.000+05:00

New York Stock Exchange

The largest of the countries organized securities exchanges. Tracing its origins to the 1792 Buttonwood Agreement among street brokers, the exchange developed from an outdoor market on Wall Street in lower Manhattan into the New York Stock and Exchange Board in 1817. The current name was adopted in 1863.

The exchange trades stocks that it lists, or registers. Trading takes place on the exchange at various official posts where markets are maintained by traders known as specialists. They buy and sell their assigned stocks from other floor brokers who represent themselves and the public. Specialists and other brokers purchase their seats on the exchange and are required to meet certain capital requirements in order to trade. From just a handful of stocks in its first decade, the exchange by the end of the twentieth century listed more than 2,900 different companies, both foreign and domestic. In terms of value represented, this made it the world's largest stock exchange.

After many smaller disasters, the exchange suffered its most serious decline in the stock market crash of 1929. As a result of congressional investigations that followed, the exchange was subjected to federal regulation by the Securities Exchange Act of 1934. This act put all stock exchanges under the jurisdiction of the stock exchange commission. Two 1975 developments affecting the New York Stock Exchange were the consolidation of the ticker tape reporting transactions into a national integrated system with other exchanges and the abolition of fixed commission rates in favor of negotiated rates.

Financial Highlights

Included in the GAAP results for the quarter ended June 30, 2008 were $38 million of pre-tax merger expenses and exit costs (primarily severance charges incurred in connection with a voluntary resignation incentive program), as compared to $16 million in the comparable period a year ago. In addition, the GAAP results for the quarter ended June 30, 2008 were favorably impacted by the reversal of a $36 million accrual relating to certain litigation between a former Chairman& CEO and the NYSE, which was finally terminated on July 31, 2008.
On a non-GAAP basis, net transaction revenues (defined as cash and derivatives trading revenues net of liquidity payments and routing and clearing expenses) increased $60 million or 17% for the three months ended June 30, 2008 versus the year ago period and are up 28% on a year-to-date basis.
In May, NYSE Euro next completed the statutory buy-out of the remaining minority Euro next shareholders who held approximately 2% of the shares of Euro next N.V. for an aggregate consideration of €252 million ($389 million). As a result of this buy-out, Euro next N.V. and its subsidiaries are now wholly-owned by NYSE Euro next.
As a result of the Euro next transaction, and following the reorganization of certain of our businesses, the effective tax rate of NYSE Euro next on a non-GAAP basis was 27% for the three months ended June 30, 2008 as compared to 32% for the same period a year ago. For the balance of the year, NYSE Euro next anticipates providing income taxes at an effective tax rate of 29%.
As of June 30, 2008, NYSE Euro next had a strong financial position with $1.3 billion of cash, cash equivalents, investment and other securities (including $155 million related to Section 31 fees collected from market participants and due to the (SEC) and $3.0 billion in debt obligations.
On April 11 and May 21, NYSE Euro next successfully launched a 7-year €750 million ($1,181 million) bond issue in the Euro market and priced a 5-year $750 million underwritten public offering of senior notes in the U.S. , respectively. These offerings enabled NYSE Euro next to lengthen the maturity profile of its debt and to fix approximately 65% of its total debt at a weighted average interest rate of 5.1%. This compares to NYSE Euro next’s average variable borrowing rate of 3.7% on commercial paper for the quarter.
American Stock Exchange (Amex) members overwhelmingly approved the proposed merger with NYSE Euro next. The transaction is expected to close in the third quarter of 2008 following SEC approval. While we anticipate Amex to generate operating losses for the balance of this year, we expect the transaction to produce $100 million in run-rate savings and to be accretive by the end of 2009.
Following the close of the Amex transaction, NYSE Euro next intends to implement the previously announced $1 billion stock repurchase program, in accordance with SEC rules and subject to strategic and credit considerations.
On July 31, 2008, the NYSE Euro next Board of Directors approved a resolution to remove the transfer restrictions on approximately 42 million common shares issued in connection with the merger of NYSE and Archipelago, effective upon closing of the Amex transaction. The restrictions on these shares, which represent approximately 16% of the 266 million total common shares outstanding as of June 30, 2008, were originally scheduled to lapse on March 7, 2009.
NYSE Euro next will make a $0.30 quarterly dividend payment on September 30, 2008 to shareholders of record as of September 15, 2008.

£1,000,000,000 crash on New York stock exchange

Wild selling in record turnover of 13,000,000 shares | Bankers statement stems panic

October 25, 1929
Friday October 25, 1929

The heavy break on the New York Stock Exchange, which began on Saturday and has been increased on each succeeding day except Tuesday, when there was a slight recovery, reached catastrophic proportions yesterday with a crash described as the worst in the history of the Exchange. The floor of the Exchange was a scene of the wildest excitement, and the shouts of the brokers seeking to unload their stocks at any price could be heard in the streets. It is estimated that £1,000,000,000 in paper values had been swept away by the close of the market. The day's sales were 12,895,000 shares, against the previous highest number of 8,240,000 on March 26. The tape machine records of prices finished nearly three hours behind the market. The fall at the opening of the market was so rapid that a conference of leading bankers was hastily called and a reassuring statement issued. This had a temporary rallying effect in certain sections, but the liquidation was continued elsewhere. That bankers' statement had served to allay market fears to some extent was shown in a last-hour rally in a few sections, in which last prices were above the worst. The slump is the worst since the historic panic of 1907 when the paper value of securities was destroyed by hundreds of millions and America had to import £20,000,000 in gold to prevent even more far-reaching disaster.

London reactions

Stockbrokers Stay for the Slump

From a City Correspondent, London

For hours after the Stock Exchange had closed this afternoon there were hundreds of stockbrokers and clerks congregating in Sorter’s Court, off Throgmorton Street, or rushing between there and their offices in pouring rain, for New York's slump has its importance to the Stock Exchange here. By tea-time some of the American stocks were as much as $30 below the London closing prices of the previous night, while some of the Anglo-American shares, like a well-known gramophone share, had dropped by pounds instead of normal half-crowns.

Shorter's Court is surrounded by offices holding telephone operators, and in some of these were women clerks with their hats on still hard at work, but quite ready to dash away home directly things quietened down.

In the "Court" dealers changed their quotations so rapidly, as New York prices fluctuated, that even smart stockbrokers and experienced financial journalists had difficulty in ascertaining actual prices. Men dealt in shares by the thousand, and merely added a "Thank you."

By seven o'clock Wall Street began to buy, and very soon afterwards the Stock Exchange men began to leave Throgmorton Street for home, or to deal by telephone from their offices. At 7.30 the "street market" was closed, and Throgmorton Street was left to a solitary policeman on the wettest and dullest night the City can remember this year.

"Record" sales on both exchanges

Exchange Telegram, New York

It is estimated that $5,000,000,000 (£1,000,000,000) in market values were swept away in the worst crash in the history of the Stock Exchange to-day, eclipsing yesterday's crash. By 2 p.m. 11,000,000 shares had frantically changed hands, and at 3 p.m. the "tickers" were nearly three hours behind. Late in the session some of the strongest banks in the country began supporting the leading stocks, causing temporary rallies, but the general liquidation continued. Meanwhile all stocks and commodity markets throughout the country declined in sympathy. The day's sales totaled 12,895,650 shares, a "record" for all time, while sales on the kerbed exchange amounted to 6,337,400 shares, also a "record."

Pandemonium reigned all day. The shouts of the frenzied brokers, fighting on the floor of the exchange to sell their stocks at the best available prices, could be heard in the street.

what is stock exchnge?: what is stock exchange?

2008-12-25T12:35:00.000+05:00

what is stock exchnge?: what is stock exchange?

what is stock exchange?

2008-12-24T10:49:00.000+05:00

What is an Exchange?

An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded. Buyers and sellers come together to trade during specific hours on business days. Exchanges impose rules and regulations on the firms and brokers that are involved with them. If a particular company is traded on an exchange, it is referred to as "listed".

Companies that are not listed on a stock exchange are sold OTC (short for Over-The-Counter). Companies that have shares traded OTC are usually smaller and riskier because they do not meet the requirements to be listed on a stock exchange.

The Stock Market
how it Works

A stock market may be thought of in terms of two separate functions:

1. The Primary Market Function:

The place where companies can raise long term funds for their operations by issuing shares and other securities to investors.

2. The Secondary Market Function:

Where investors can buy and sell those shares at current prices as determined by other investors in the market.

A Place where Companies Can Raise Capital

A Company that wishes to set up a new business or expand its existing business can raise the capital it requires either by borrowing money or by issuing shares to investors.

The investors become shareholders in the Company, meaning they are part owners of the Company and share in its profits and growth.

Companies wishing to have their shares traded must first be listed. To become listed, a Company must be large enough for there to be a market in its shares and it must agree to abide by the listing rules which, amongst other things, require it to keep the market informed of its activities and to regularly reports profits and other financial information.

A Marketplace for Buyers and Sellers

After a Company has listed and issued shares to investors, the shares can then be sold to other investors in the stock market.

Private individuals can buy shares directly through an adviser at a stock broking firm, or they can place their money with a fund manager or financial institution, perhaps one which manages an equity trust or superannuation fund. The fund manager will decide where and how to invest the money.

The buying and selling of shares takes place on the electronic trading system with staff at stock broking firms entering buying and selling orders on behalf of investors.

The price of the shares is determined by the forces of supply and demand, as private investors and fund managers decide at what price they will buy and sell.

Private investors are very important in the process as they control a large percentage of total funds invested in the share market.

The share market provides an opportunity for investors to contribute to benefit from the wealth-creating activities of companies and in that way participate in the broader economy.

For private investors, wealth is created in the form of dividends and other income and capital gains from selling shares as prices rise.

What is dividend?

A dividend is the distribution of profits to a company's shareholders. The primary purpose of any business is to create profit for its owners, and the dividend is the most important way the business fulfills this mission. When a company earns a profit, some of this money is typically reinvested in the business and called retained earnings, and some of it can be paid to its shareholders as a dividend. Paying dividends reduces the amount of cash available to the business, but the distribution of profit to the owners is, after all, the purpose of the business.

Stockbrokers

A stockbroker is referred to as the retail part of the market. Stockbrokers act on behalf of clients and buy and sell shares on their behalf and generally belong to firms who are members of the Stock Exchange.

They earn their money from charging a commission on each transaction. They might also advise clients on the shares that the client might be thinking of trading. Because there could obviously be a conflict of interest with stockbrokers advising clients of trades that might not be necessary to build the commission of the broker, their work is regulated by the Financial Services Authority (FSA). The rules are very tight and strictly observed and enforced. The process of buying and selling for the purpose of generating commission is called 'churning'.

Some stockbrokers may act as 'execution only'. This means they merely buy and sell shares at low commission rates but do not offer any advice.

Board of director

A company's board of directors provides the company with direction and advice. It is the responsibility of the board of directors to ensure that the company fulfills its mission statement. In doing so, the board of directors frequently sets the company's overall policy objectives. For these reasons, a good board of directors includes knowledgeable and experienced business people.

Typically, only one member of the board of directors is involved with the day-to-day activities of the company. This person is the Chief Executive Officer (CEO), and he or she acts as a liaison between the board of directors and the rest of the company. The CEO is responsible for communicating to the board of directors the daily status of the company, and for communicating and implementing the vision and policy objectives of the board of directors.

Market Makers

Market makers do not earn a commission from their activities. They simply buy and sell shares on their own account but make their money on the difference between the price they pay for buying shares and what they sell them for. This difference is called the 'spread'

Role of stock exchange

· The Stock Exchange helps companies to raise capital for expansion through selling shares to the investing public.

· They help in mobilizing savings for investment which in turn benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity levels.

· Companies can expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets.

· They help in Redistribution of wealth through stock price increases and dividends get a chance to share in the wealth of profitable businesses.

· They help to Create investment opportunities for small investors by enabling them to own shares of the companies as large investors, and to enjoy similar rates of return

· Its helpful for Government to raise capital for development projects, infrastructure projects such as sewage and water treatment works or housing estates

· Its serves as an economic Barometer, An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

Main stock exchanges of the world

Some of the main stock exchange of the world

· Tokyo stock exchange

· New York stock exchange

· London stock exchange

· Honking stock exchange

· Mumbai stock exchange

· Karachi stock exchange