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A stock market, equity market, or share market is the aggregation of buyers and sellers of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s (also called shares), which represent
ownership Ownership is the state or fact of exclusive right In Anglo-Saxon law Anglo-Saxon law (Old English Old English (, ), or Anglo-Saxon, is the earliest recorded form of the English language English is a West Germanic languages, West Germ ...
claims on businesses; these may include ''securities'' listed on a public
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
, as well as stock that is only traded privately, such as shares of private companies which are sold to
investor An investor is a person that allocates capital with the expectation of a future financial return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Types ...
s through
equity crowdfundingEquity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a part of the capital markets. Because equity crowdfunding involves investment into a commercial enterprise, it is oft ...
platforms. Investment in the stock market is most often done via
stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller ...

stockbroker
ages and
electronic trading platform In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary A financial intermediary is an ...
s. Investment is usually made with an
investment strategyIn finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money available w ...
in mind. Stocks can be categorized by the country where the company is domiciled. For example,
Nestlé Nestlé S.A. (; ) is a Swiss multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational state, ...
and
Novartis Novartis International AG is a Swiss multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational ...

Novartis
are domiciled in
Switzerland , french: Suisse(sse), it, svizzero/svizzera or , rm, Svizzer/Svizra , government_type = Federalism, Federal semi-direct democracy under an assembly-independent Directorial system, directorial republic , leader_title1 = Fe ...

Switzerland
and traded on the
SIX Swiss Exchange SIX Swiss Exchange (formerly SWX Swiss Exchange), based in Zurich, is Switzerland ,german: Schweizer(in),french: Suisse(sse), it, svizzero/svizzera or , rm, Svizzer/Svizra , government_type = Federalism, Federal semi-direct democracy under a m ...
, so they may be considered as part of the
Swiss Swiss may refer to: * the adjectival form of Switzerland ,german: Schweizer(in),french: Suisse(sse), it, svizzero/svizzera or , rm, Svizzer/Svizra , government_type = Federalism, Federal semi-direct democracy under a multi-party assembly-indep ...

Swiss
stock market, although the stocks may also be traded on exchanges in other countries, for example, as
American depositary receipt An American depositary receipt (ADR, and sometimes spelled ''depository'') is a Negotiable instrument, negotiable security that represents securities of a foreign company and allows that company's shares to trade in the U.S. financial markets. S ...
s (ADRs) on U.S. stock markets.


Size of the markets

The total
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company ...
of all publicly traded securities worldwide rose from US$2.5 trillion in 1980 to US$93.7 trillion at the end of 2020. , there are 60 stock exchanges in the world. Of these, there are 16 exchanges with a
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company ...
of $1 trillion or more, and they account for 87% of
global market A market is a composition of system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described ...
capitalization. Apart from the
Australian Securities Exchange The Australian Securities Exchange is Australia's primary securities exchange. It is owned and operated by ASX Limited, with the exchange also commonly referred to as the ASX. While the exchange and the operating companies are separate, they are ...
, these 16 exchanges are all in
North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, up to seven geographical regions are commonly regarded as continen ...

North America
,
Europe Europe is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, up to seven geographical regions are commonly regarded as continents. Ordered ...

Europe
, or
Asia Asia () is Earth's largest and most populous continent, located primarily in the Eastern Hemisphere, Eastern and Northern Hemisphere, Northern Hemisphere of the Earth, Hemispheres. It shares the continental landmass of Eurasia with the cont ...

Asia
. By country, the largest stock markets as of January 2021 are in the United States of America (about 55.9%), followed by Japan (about 7.4%) and China (about 5.4%).


Stock exchange

A
stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sell security (finance), securities, such as share (finance), shares of stock, Bond (finance), ...
is an
exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green Township, Morgan County, Indiana, Morgan County, in the U.S. state of In ...
(or bourse) where
stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller ...

stockbroker
s and traders can buy and sell
share Share may refer to: * Share, to make joint use of a resource (such as food, money, or space); see Sharing * Share (finance), a stock or other financial security (such as a mutual fund) * Share, Kwara, a town and LGA in Kwara State, Nigeria Share ma ...
s (equity
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
), bonds, and other
securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
. Many large companies have their stocks listed on a stock exchange. This makes the stock more liquid and thus more attractive to many investors. The exchange may also act as a guarantor of settlement. These and other stocks may also be traded "
over the counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid presc ...
" (OTC), that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, so as to attract international investors. Stock exchanges may also cover other types of securities, such as fixed-interest securities (bonds) or (less frequently) derivatives, which are more likely to be traded OTC. Trade in stock markets means the transfer (in exchange for money) of a stock or security from a seller to a buyer. This requires these two parties to agree on a price.
Equities Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recogn ...
(stocks or shares) confer an ownership interest in a particular company. Participants in the stock market range from small individual stock investors to larger investors, who can be based anywhere in the world, and may include
bank A bank is a financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), stat ...

bank
s,
insurance Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...

insurance
companies,
pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed an ...
s and
hedge fund A hedge fund is a pooled investment fund Image:Financial info.jpg, The values and performance of collective funds are listed in newspapers. An investment fund is a way of investment, investing money alongside other investors in order to benefit ...
s. Their buy or sell orders may be executed on their behalf by a stock exchange trader. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as
open outcry Open outcry is a method of communication between professionals on a stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy and sel ...
. This method is used in some stock exchanges and
commodities exchange A commodities exchange is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green Township, Morgan County, Indian ...
s, and involves traders shouting bid and offer prices. The other type of stock exchange has a network of computers where trades are made electronically. An example of such an exchange is the
NASDAQ The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorpora ...
. A potential buyer ''bids'' a specific price for a stock, and a potential seller ''asks'' a specific price for the same stock. Buying or selling ''at the
Market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden Art, entertainment, and media Films *Market (1965 film), ''Market'' (1965 ...
'' means you will accept ''any'' ask price or bid price for the stock. When the bid and ask prices match, a sale takes place, on a first-come, first-served basis if there are multiple bidders 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 fa:بازار A market, or marketplace, is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a market place may be described as a ''souk'' (from the ...

marketplace
. The exchanges provide real-time trading information on the listed securities, facilitating
price discovery The price discovery process (also called price discovery mechanism) is the process of determining the price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for one unit o ...
. The
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy an ...

New York Stock Exchange
(NYSE) is a physical exchange, with a
hybrid market A hybrid market allows a stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is execute ...
for placing orders electronically from any location as well as on the
trading floor Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market (economics), market. An early form of trade, the Gift ...
. Orders executed on the trading floor enter by way of exchange members and flow down to a floor broker, who submits the order electronically to the floor trading post for the Designated
market maker A market maker or liquidity provider is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a ...
("DMM") for that stock to trade the order. The DMM's job is to maintain a two-sided market, making orders to buy and sell the security when there are no other buyers or sellers. If a
bid–ask spread The bid–ask spread (also bid–offer or bid/ask and buy/sell in the case of a market maker A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a tradable asset held in inventory, hoping ...
exists, no trade immediately takes place – in this case the DMM may use their own resources (money or stock) to close the difference. Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Computers play an important role, especially for
program trading Program, programme, programmer, or programming may refer to: Business and management * Program management Program management or programme management is the process of managing several related project A project (or program) is any undertakin ...
. The
NASDAQ The Nasdaq Stock Market () is an American stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorpora ...
is an electronic exchange, where all of the trading is done over a
computer network A computer network is a set of computer A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations automatically. Modern computers can perform generic sets of operati ...
. The process is similar to the New York Stock Exchange. One or more NASDAQ
market maker A market maker or liquidity provider is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a ...
s will always provide a bid and ask the price at which they will always purchase or sell 'their' stock. The
Paris Bourse Euronext Paris is France's securities market, formerly known as the Paris Bourse, which merged with the Amsterdam Amsterdam ( , , ) is the Capital of the Netherlands, capital and Municipalities of the Netherlands, most populous city of th ...
, now part of
Euronext Euronext N.V. (short for European New Exchange Technology) is a pan-European bourse that offers trading in regulated equities Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an ...
, 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.
Stockbroker A stockbroker is a regulated broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller ...

Stockbroker
s met on the trading floor of the Palais Brongniart. In 1986, the CATS trading system was introduced, and the
order matching system An order matching system or simply matching system is an electronic system that matches buy and sell orders for a stock market, commodity market or other financial exchange. The order matching system is the core of all electronic Exchange (organi ...
was fully automated. People trading stock will prefer to trade on the most popular exchange since this gives the largest number of potential counter parties (buyers for a seller, sellers for a buyer) and probably the best price. However, there have always been alternatives such as brokers trying to bring parties together to trade outside the exchange. Some third markets that were popular are
Instinet Instinet is an institutional, agency-model broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also act ...
, and later Island and Archipelago (the latter two have since been acquired by Nasdaq and NYSE, respectively). One advantage is that this avoids the commissions of the exchange. However, it also has problems such as
adverse selection In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant ...
. Financial regulators have probed
dark pool ''Dark Pool'' is the third studio album packaged in book form, like a photograph album An album is a collection of audio recordings issued as a collection on compact disc (CD), Phonograph record, vinyl, audio tape, or another medium. Albums ...
s.


Market participant

Market participant The term market participant is another term for economic agent In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), di ...
s include individual retail investors,
institutional investor An institutional investor is an entity which pools money to purchase Security (finance), securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, S ...
s (e.g.,
pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides pension, retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed an ...
s,
insurance companies Insurance is a means of protection from financial loss. It is a form of risk management Risk management is the identification, evaluation, and prioritization of risk In simple terms, risk is the possibility of something bad happening. ...
,
mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the ri ...
s,
index fund An index fund (also index tracker) is a mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages ...
s,
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the da ...
s,
hedge fund A hedge fund is a pooled investment fund Image:Financial info.jpg, The values and performance of collective funds are listed in newspapers. An investment fund is a way of investment, investing money alongside other investors in order to benefit ...
s, investor groups, banks and various other
financial institution Financial institutions, otherwise known as banking institutions, are corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entit ...
s), and also publicly traded corporations trading in their own shares.
Robo-advisorRobo-advisors or robo-advisers are a class of financial adviser A financial adviser or financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must co ...
s, which automate investment for individuals are also major participants.


Demographics of market participation


Indirect vs. Direct Investment

Indirect investment involves owning shares indirectly, such as via a mutual fund or an exchange traded fund. Direct investment involves direct ownership of shares. Direct ownership of stock by individuals rose slightly from 17.8% in 1992 to 17.9% in 2007, with the median value of these holdings rising from $14,778 to $17,000. Indirect participation in the form of retirement accounts rose from 39.3% in 1992 to 52.6% in 2007, with the median value of these accounts more than doubling from $22,000 to $45,000 in that time. Rydqvist, Spizman, and Strebulaev attribute the differential growth in direct and indirect holdings to differences in the way each are taxed in the United States. Investments in pension funds and 401ks, the two most common vehicles of indirect participation, are taxed only when funds are withdrawn from the accounts. Conversely, the money used to directly purchase stock is subject to taxation as are any dividends or capital gains they generate for the holder. In this way the current tax code incentivizes individuals to invest indirectly.


Participation by income and wealth strata

Rates of participation and the value of holdings differ significantly across strata of income. In the bottom quintile of income, 5.5% of households directly own stock and 10.7% hold stocks indirectly in the form of retirement accounts. The top decile of income has a direct participation rate of 47.5% and an indirect participation rate in the form of retirement accounts of 89.6%. The median value of directly owned stock in the bottom quintile of income is $4,000 and is $78,600 in the top decile of income as of 2007. The median value of indirectly held stock in the form of retirement accounts for the same two groups in the same year is $6,300 and $214,800 respectively. Since the Great Recession of 2008 households in the bottom half of the income distribution have lessened their participation rate both directly and indirectly from 53.2% in 2007 to 48.8% in 2013, while over the same period households in the top decile of the income distribution slightly increased participation 91.7% to 92.1%. The mean value of direct and indirect holdings at the bottom half of the income distribution moved slightly downward from $53,800 in 2007 to $53,600 in 2013. In the top decile, mean value of all holdings fell from $982,000 to $969,300 in the same time. The mean value of all stock holdings across the entire income distribution is valued at $269,900 as of 2013.


Participation by race and gender

The racial composition of stock market ownership shows households headed by whites are nearly four and six times as likely to directly own stocks than households headed by blacks and Hispanics respectively. As of 2011 the national rate of direct participation was 19.6%, for white households the participation rate was 24.5%, for black households it was 6.4% and for Hispanic households it was 4.3%. Indirect participation in the form of 401k ownership shows a similar pattern with a national participation rate of 42.1%, a rate of 46.4% for white households, 31.7% for black households, and 25.8% for Hispanic households. Households headed by married couples participated at rates above the national averages with 25.6% participating directly and 53.4% participating indirectly through a retirement account. 14.7% of households headed by men participated in the market directly and 33.4% owned stock through a retirement account. 12.6% of female-headed households directly owned stock and 28.7% owned stock indirectly.


Determinants and possible explanations of stock market participation

In a 2003 paper by Vissing-Jørgensen attempts to explain disproportionate rates of participation along wealth and income groups as a function of fixed costs associated with investing. Her research concludes that a fixed cost of $200 per year is sufficient to explain why nearly half of all U.S. households do not participate in the market. Participation rates have been shown to strongly correlate with education levels, promoting the hypothesis that information and transaction costs of market participation are better absorbed by more educated households. Behavioral economists Harrison Hong, Jeffrey Kubik and Jeremy Stein suggest that sociability and participation rates of communities have a statistically significant impact on an individual's decision to participate in the market. Their research indicates that social individuals living in states with higher than average participation rates are 5% more likely to participate than individuals that do not share those characteristics. This phenomenon also explained in cost terms. Knowledge of market functioning diffuses through communities and consequently lowers transaction costs associated with investing.


History

In 12th-century France, the courtiers ''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
broker A broker is a person or firm who arranges transactions between a Purchasing, buyer and a sales, seller for a commission (remuneration), commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a :wikt:princip ...
s. The Italian historian Lodovico Guicciardini described how, in late 13th-century
Bruges Bruges ( , nl, Brugge ; ; german: Brügge ) is the capital and largest city of the Provinces of Belgium, province of West Flanders in the Flemish Region of Belgium, in the northwest of the country, and the seventh-largest city of the country b ...

Bruges
, commodity traders gathered outdoors at a market square containing an inn owned by a family called ''Van der Beurze'', and in 1409 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting. The idea quickly spread around
Flanders Flanders (, ; Dutch Dutch commonly refers to: * Something of, from, or related to the Netherlands * Dutch people () * Dutch language () *Dutch language , spoken in Belgium (also referred as ''flemish'') Dutch may also refer to:" Castle * ...

Flanders
and neighboring countries and "Beurzen" soon opened in
Ghent Ghent ( ; Dutch Dutch commonly refers to: * Something of, from, or related to the Netherlands * Dutch people () * Dutch language () *Dutch language , spoken in Belgium (also referred as ''flemish'') Dutch may also refer to:" Castle * Du ...

Ghent
and
Rotterdam Rotterdam ( , , ) is the second largest city A city is a large human settlement.Goodall, B. (1987) ''The Penguin Dictionary of Human Geography''. London: Penguin.Kuper, A. and Kuper, J., eds (1996) ''The Social Science Encyclopedia''. 2n ...

Rotterdam
. International traders, and specially the Italian bankers, present in Bruges since the early 13th-century, took back the word in their countries to define the place for stock market exchange: first the Italians (Borsa), but soon also the French (Bourse), the Germans (börse), Russians (birža), Czechs (burza), Swedes (börs), Danes and Norwegians (børs). In most languages the word coincides with that for money bag, dating back to the Latin bursa, from which obviously also derives the name of the Van der Beurse family. In the middle of the
13th century The 13th century was the which lasted from January 1, () through December 31, () in accordance with the . The term is often used to refer to the 1200s, the century between 1200 and 1299. The was founded by , which stretched from to . The ...
, 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 Pisa ( , or ) is a city and ''comune The (; plural: ) is a Administrative division, local administrative division of Italy, roughly equivalent to a township or municipality. Importance and function The provides essential public ser ...

Pisa
,
Verona Verona ( , ; vec, Verona or ''Veròna'') is a city A city is a large human settlement.Goodall, B. (1987) ''The Penguin Dictionary of Human Geography''. London: Penguin.Kuper, A. and Kuper, J., eds (1996) ''The Social Science Encyclopedia''. ...

Verona
,
Genoa Genoa ( ; it, Genova ; locally ; lij, Zêna ; English, historically, and la, Genua) is the capital of the Regions of Italy, Italian region of Liguria and the List of cities in Italy, sixth-largest city in Italy. In 2015, 594,733 people lived ...

Genoa
and
Florence Florence ( ; it, Firenze ) is a city in Central-Northern Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of Italian Peninsula, a peninsula delimited by the Al ...

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. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. Around this time, a
joint stock company A joint-stock company is a business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue ...
—one whose stock is owned jointly by the shareholders—emerged and became important for colonization of what Europeans called the "New World". The
Dutch East India Company The Dutch East India Company, officially the United East India Company ( nl, Vereenigde Oost Indische Compagnie; VOC), was a multinational corporation A multinational company (MNC) is a corporate A corporation is an organization—u ...

Dutch East India Company
(founded in 1602) was the first
joint-stock company A joint-stock company is a business entity In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, lawsuit, sue ...
to get a fixed capital stock and as a result, continuous trade in company stock occurred on the Amsterdam Exchange. Soon thereafter, a lively trade in various
derivatives Derivative may refer to: In mathematics and economics *Brzozowski derivative in the theory of formal languages *Derivative in calculus, a quantity indicating how a function changes when the values of its inputs change. *Formal derivative, an opera ...
, among which options and repos, emerged on the
Amsterdam Amsterdam (, , ) is the Capital of the Netherlands, capital and Municipalities of the Netherlands, most populous city of the Netherlands with a population of 872,680 within the city proper, 1,558,755 in the City Region of Amsterdam, urban ar ...

Amsterdam
market. Dutch traders also pioneered
short selling In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money avail ...

short selling
 – a practice which was banned by the Dutch authorities as early as 1610. There are now stock markets in virtually every developed and most developing economies, with the world's largest markets being in the United States, United Kingdom, Japan,
India India, officially the Republic of India (Hindi Hindi (Devanagari: , हिंदी, ISO 15919, ISO: ), or more precisely Modern Standard Hindi (Devanagari: , ISO 15919, ISO: ), is an Indo-Aryan language spoken chiefly in Hindi Belt, ...

India
, China,
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
, Germany (
Frankfurt Stock Exchange The Frankfurt Stock Exchange (german: Börse Frankfurt, former German name - FWB) is the world's 12th largest stock exchange A stock exchange, securities exchange, or bourse is an exchange Exchange may refer to: Places United States * ...

Frankfurt Stock Exchange
), France,
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is for ...

South Korea
and the
Netherlands ) , national_anthem = ( en, "William of Nassau") , image_map = EU-Netherlands.svg , map_caption = , image_map2 = BES islands location map.svg , map_caption2 = , image_map3 ...

Netherlands
.


Importance


Function and purpose

The stock market is one of the most important ways for
companies A company, abbreviated as co., is a legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surround ...

companies
to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The
liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can qui ...
that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
and other immoveable assets. History has shown that the price of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. The stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore,
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money ...

central bank
s tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of
financial system A financial system is a system that allows the exchange of funds between financial market participants There are two basic financial market participant categories, Investor vs. Speculator and Institutional vs. Retail Retail is the proc ...

financial system
functions. Financial stability is the raison d'être of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the
counterparty A counterparty (sometimes contraparty) is a legal entity, unincorporated entity, or collection of entities to which an exposure to financial risk might exist. The word became widely used in the 1980s, particularly at the time of the Basel I in 198 ...

counterparty
could default on the transaction. The smooth functioning of all these activities facilitates
economic growth Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economics, economy over time. Statisticians conventionally measure such growth as the percent rate of i ...

economic growth
in that lower costs and enterprise risks promote the production of goods and services as well as possibly employment. In this way the financial system is assumed to contribute to increased prosperity, although some controversy exists as to whether the optimal financial system is bank-based or market-based. Recent events such as the
Global Financial Crisis Global means of or referring to a globe A globe is a spherical physical model, model of Earth, of some other astronomical object, celestial body, or of the celestial sphere. Globes serve purposes similar to some maps, but unlike maps, do not dis ...
have prompted a heightened degree of scrutiny of the impact of the structure of stock markets (called
market microstructure Market microstructure is a branch of finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers a ...
), in particular to the stability of the financial system and the transmission of
systemic risk In finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with the creation and management of money and investments. Savers and investors have money availab ...
.


Relation to the modern financial system

A transformation is the move to
electronic trading In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ca ...
to replace human trading of listed
securities A security is a tradable financial asset A financial asset is a non-physical asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication o ...
.


Behavior of stock prices

Changes in stock prices are mostly caused by external factors such as
socioeconomic Socioeconomics (also known as social economics) is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how modern society, societies social progress, progress, economic stagnation ...
conditions, inflation, exchange rates.
Intellectual capitalIntellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people (human capital), the value relati ...
does not affect a company stock's current earnings.
Intellectual capitalIntellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people (human capital), the value relati ...
contributes to a stock's return growth. The
efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear o ...
(EMH) is a hypothesis in financial economics that states that asset prices reflect all available information at the current time. The 'hard'
efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear o ...
does not explain the cause of events such as the crash in 1987, when the
Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a price-weighted measurement stock market index In finance, a stock index, or stock market index, is an Index (economics), index that measures a stock market, or ...

Dow Jones Industrial Average
plummeted 22.6 percent—the largest-ever one-day fall in the United States. This event demonstrated that share prices can fall dramatically even though no generally agreed upon definite cause has been found: a thorough search failed to detect ''any'' 'reasonable' development that might have accounted for the crash. (Note that such events are predicted to occur strictly by
randomness In common parlance, randomness is the apparent or actual lack of pattern A pattern is a regularity in the world, in human-made design, or in abstract ideas. As such, the elements of a pattern repeat in a predictable manner. A geometric pat ...
, although very rarely.) It seems also to be true more generally that many price movements (beyond those which are predicted to occur 'randomly') are ''not'' occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period seems to confirm this. A 'soft' EMH has emerged which does not require that prices remain at or near equilibrium, but only that market participants cannot ''systematically'' profit from any momentary '
market anomaly A market anomaly in a financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared by Finland and Sweden ...
'. Moreover, while EMH predicts that all price movement (in the absence of change in fundamental information) is random (i.e. non-trending), many studies have shown a marked tendency for the stock market to trend over time periods of weeks or longer. Various explanations for such large and apparently non-random price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and
value at risk Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by fi ...

value at risk
limits, ''theoretically could'' cause financial markets to overreact. But the best explanation seems to be that the distribution of stock market prices is non-Gaussian (in which case EMH, in any of its current forms, would not be strictly applicable). Other research has shown that psychological factors may result in ''exaggerated'' (statistically anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just ''noise'', e.g. seeing familiar shapes in clouds or ink blots. In the present context, this means that a succession of good news items about a company may lead investors to overreact positively, driving the price up. A period of good returns also boosts the investors' self-confidence, reducing their (psychological) risk threshold. Another phenomenon—also from psychology—that works against an
objective Objective may refer to: * Objective (optics), an element in a camera or microscope * ''The Objective'', a 2008 science fiction horror film * Objective pronoun, a personal pronoun that is used as a grammatical object * Objective Productions, a Briti ...
assessment is ''''. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group. In one paper the authors draw an analogy with
gambling Gambling (also known as betting) is the wagering something of Value (economics), value ("the stakes") on an Event (probability theory), event with an uncertain outcome with the intent of winning something else of value. Gambling thus requires ...
. In normal times the market behaves like a game of
roulette Roulette is a casino A casino is a facility for certain types of gambling. Casinos are often built near or combined with hotels, resorts, restaurants, retail shopping, cruise ships, and other tourist attractions. Some casinos are also known ...

roulette
; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker (herding behavior takes over). The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. In the period running up to the 1987 crash, less than 1 percent of the analysts' recommendations had been to sell (and even during the 2000–2002
bear market A market trend is a perceived tendency of financial market A financial market is a market Market may refer to: *Market (economics) *Market economy *Marketplace, a physical marketplace or public market Geography *Märket, an island shared ...
, the average did not rise above 5%). In the run-up to 2000, the media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market. Stock markets play an essential role in growing industries that ultimately affect the economy through transferring available funds from units that have excess funds (savings) to those who are suffering from funds deficit (borrowings) (Padhi and Naik, 2012). In other words, capital markets facilitate funds movement between the above-mentioned units. This process leads to the enhancement of available financial resources which in turn affects the economic growth positively. Economic and financial theories argue that stock prices are affected by macroeconomic trends. Macroeconomic trends include such as changes in GDP, unemployment rates, national income, price indices, output, consumption, unemployment, inflation, saving, investment, energy, international trade, immigration, productivity, aging populations, innovations, international finance. increasing corporate profit, increasing profit margins, higher concentration of business, lower company income, less vigorous activity, less progress, lower investment rates, lower productivity growth, less employee share of corporate revenues, decreasing Worker to Beneficiary ratio (year 1960 5:1, year 2009 3:1, year 2030 2.2:1), increasing female to male ratio college graduates. Many different academic researchers have stated that companies with low P/E ratios and smaller-sized companies have a tendency to outperform the market. Research has shown that mid-sized companies outperform large cap companies, and smaller companies have higher returns historically.


Irrational behavior

Sometimes, the market seems to react irrationally to economic or financial news, even if that news is likely to have no real effect on the fundamental value of securities itself. However, this market behaviour may be more apparent than real, since often such news was anticipated, and a counter reaction may occur if the news is better (or worse) than expected. Therefore, the stock market may be swayed in either direction by press releases, rumors,
euphoria Euphoria ( ) is the experience (or affect Affect may refer to: * Affect (education) * Affect (linguistics), attitude or emotion that a speaker brings to an utterance * Affect (philosophy) * Affect (psychology), the experience of feeling or e ...

euphoria
and
mass panic Mass psychogenic illness (MPI), also called mass sociogenic illness, mass psychogenic disorder, epidemic hysteria, or mass hysteria, is the rapid spread of illness signs and symptoms affecting members of a cohesive group, originating from a nervou ...
. Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market behavior difficult to predict. Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally accepted. Behaviorists argue that investors often behave ''irrationally'' when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money. However, the whole notion of EMH is that these non-rational reactions to information cancel out, leaving the prices of stocks rationally determined. The Dow Jones Industrial Average biggest gain in one day was 936.42 points or 11%.


Crashes

A stock market crash is often defined as a sharp dip in
share price A share price is the price of a single share Share may refer to: * Share, to make joint use of a resource (such as food, money, or space); see Sharing * Share (finance), a stock or other financial security (such as a mutual fund) * Share, Kwara, a ...
s of
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes end speculative
economic bubble An economic bubble is a situation in which asset prices are much higher than the underlying fundamentals can reasonably justify. Bubbles are sometimes caused by unlikely and overly optimistic projections about the future. It could also be descri ...
s. There have been famous
stock market crash A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic selling and underlying economic factors. They often foll ...
es that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the
social security Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet basic human needs Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and ...
and
retirement plan A pension (, from Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power of ...
s are being increasingly privatized and linked to
stock In finance, stock (also capital stock) consists of all of the shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities i ...

stock
s and bonds and other elements of the market. There have been a number of famous stock market crashes like the
Wall Street Crash of 1929 The Wall Street Crash of 1929, also known as the Great Crash, was a major American stock market crash A stock market crash is a sudden dramatic decline of stock In finance, stock (also capital stock) consists of all of the shares In ...
, the stock market crash of 1973–4, the Black Monday (1987), Black Monday of 1987, the Dot-com bubble of 2000, and the Stock Market Crash of 2008.


1929

One of the most famous stock market crashes started October 24, 1929, on Black Thursday. The
Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a price-weighted measurement stock market index In finance, a stock index, or stock market index, is an Index (economics), index that measures a stock market, or ...

Dow Jones Industrial Average
lost 50% during this stock market crash. It was the beginning of the Great Depression.


1987

Another famous crash took place on October 19, 1987 – Black Monday. The crash began in Hong Kong and quickly spread around the world. By the end of October, stock markets in Hong Kong had fallen 45.5%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. Black Monday itself was the largest one-day percentage decline in stock market history – the Dow Jones fell by 22.6% in a day. The names "Black Monday" and "Black Tuesday" are also used for October 28–29, 1929, which followed Terrible Thursday—the starting day of the stock market crash in 1929. The crash in 1987 raised some puzzles – main news and events did not predict the catastrophe and visible reasons for the collapse were not identified. This event raised questions about many important assumptions of modern economics, namely, the theory of rational conduct of human being, theory of rational human conduct, the theory of market equilibrium and the
efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear o ...
. For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange computers did not perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the Federal Reserve System and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday.


2007-2009

This marked the beginning of the Great Recession. Starting in 2007 and lasting through 2009, financial markets experienced one of the sharpest declines in decades. It was more widespread than just the stock market as well. The housing market, lending market, and even global trade experienced unimaginable decline. Sub-prime lending led to the housing bubble bursting and was made famous by movies like The Big Short (film), The Big Short where those holding large mortgages were unwittingly falling prey to lenders. This saw banks and major financial institutions completely fail in many cases and took major government intervention to remedy during the period. From October 2007 to March 2009, the S&P 500 fell 57% and wouldn't recover to its 2007 levels until April 2013.


Circuit breakers

Since the early 1990s, many of the largest exchanges have adopted electronic 'matching engines' to bring together buyers and sellers, replacing the open outcry system. Electronic trading now accounts for the majority of trading in many developed countries. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market. The
New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers and stock trader, traders can buy an ...

New York Stock Exchange
and the Chicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. In February 2012, the Investment Industry Regulatory Organization of Canada (IIROC) introduced single-stock circuit breakers. * New York Stock Exchange (NYSE) circuit breakers


Stock market index

The movements of the prices in global, regional or local markets are captured in price indices called stock market indices, of which there are many, e.g. the Standard & Poor's, S&P, the FTSE 100 Index, FTSE and the
Euronext Euronext N.V. (short for European New Exchange Technology) is a pan-European bourse that offers trading in regulated equities Stock (also capital stock) is all of the shares into which ownership of a corporation A corporation is an ...
indices. Such indices are usually
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited company ...
weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.


Derivative instruments

Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are
exchange-traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the da ...
s (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures contract, futures. These last two may be traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commodity futures exchanges), or traded Over-the-counter (finance), over-the-counter. As all of these products are only ''Derivative (finance), derived'' from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market.


Leveraged strategies

Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, ''derivative (finance), derivatives'' may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales.


Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients shares or its own shares on account to lend to short sellers) then sells it on the market, betting that the price will fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called "covering". This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets.


Margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales.) Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of ''free-riding:'' putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).


Types of financial markets

Financial markets can be divided into different subtypes:


For the assets transferred

*Money market : It is traded with money or financial assets with short-term maturity and high liquidity, generally assets with a term of less than one year. *Capital market : Financial assets with medium and long-term maturity are traded, which are basic for carrying out certain investment processes.


Depending on its structure

*Organized market *Non-organized markets denominated in English (" Over The Counter ").


According to the negotiation phase of financial assets

*Primary market : Financial assets are created. In this market, assets are transmitted directly by their issuer. *Secondary market : Only existing financial assets are exchanged, which were issued at a previous time. This market allows holders of financial assets to sell instruments that were already issued in the primary market (or that had already been transmitted in the secondary market) and that are in their possession, or to buy other financial assets.


According to the geographical perspective

*National markets. The currency in which the financial assets are denominated and the residence of those involved is national. 2 *International markets. The wikt:Special:Search/market, markets situated outside a country's geographical area.


According to the type of asset traded

*Traditional market. In which financial assets such as demand deposits, stocks or bonds are traded . *Alternative market. In which alternative financial assets are traded such as portfolio investments, promissory notes, factoring, real estate (e.g. through fiduciary rights), in private equity funds, venture capital funds, hedge funds, investment projects (e.g. infrastructure, cinema, etc.) among many others.


Other markets

*Commodity markets, which allow the trading of commodities *Derivatives markets, which provide instruments for managing financial risk *Forward markets, which provide standardized forward contracts to trade products at a future date *Insurance markets, which allows the redistribution of varied risks *Foreign exchange market, which allows the exchange of foreign currencies


Investment strategies

Many strategies can be classified as either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing companies by their financial statements found in SEC filings, business trends, and general economic conditions. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends based on historical performance, regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns and is also rooted in risk management and diversification (finance), diversification. Additionally, many choose to invest via passive
index fund An index fund (also index tracker) is a mutual fund A mutual fund is a professionally managed investment fund An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages ...
s. In this method, one holds a portfolio of the entire stock market or some segment of the stock market (such as the S&P 500 Index or Wilshire 5000). The principal aim of this strategy is to maximize diversification, minimize taxes from realizing gains, and ride the general trend of the stock market to rise. Responsible investment emphasizes and requires a long-term horizon on the basis of fundamental analysis only, avoiding hazards in the expected return of the investment. Socially responsible investing is another investment preference.


Taxation

Taxation is a consideration of all investment strategies; profit from owning stocks, including dividends received, is subject to different tax rates depending on the type of security and the holding period. Most profit from stock investing is taxed via a capital gains tax. In many countries, the corporations pay taxes to the government and the shareholders once again pay taxes when they profit from owning the stock, known as "double taxation".


See also

* Equity crowdfunding * List of stock exchange trading hours * List of stock exchanges * List of stock market indices * Modeling and analysis of financial markets * Securities market participants (United States) * Securities regulation in the United States * Selling climax * Stock market bubble * Stock market cycles * Stock market data systems


Notes


References


Further reading

* * * {{DEFAULTSORT:Stock Market Stock market, Capitalism