1. What are Shares?
2. How Shares are Created?
3. What's in it for me?
4. What is Stock market?
5. How Shares are Traded?
6. Stock Market Indices
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Are Stocks and shares different?
Similar Terminology.
Of the two, "stocks" is the more general, generic term. It is often used to describe a slice of ownership of one or more companies. In contrast, in common parlance, "shares" has a more specific meaning: It often refers to the ownership of a particular company.
https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp
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What is Vendor Shares?
When a company makes an acquisition, in other words, it buys another company, it may pay cash but it may alternatively pay partly or entirely in its own shares. These are new shares issued to the owners of the company that is being bought, the vendors. You will have come across the term vendor, the Latin word for the seller if you have ever bought a house.
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What are Capital Gains?
You may be more interested in seeing the value of your shares rise than in receiving a steady stream of income. In that case, you will be looking for companies that you feel are undervalued by other investors and whose share prices will rise as other investors catch on. You want to get in first. The money you invest is referred to as capital and any increase in its value is a capital gain
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Do shares need to be traded in the stock market?
Shares do not have to be traded on a stock market. Supposing you have a bright idea but you do not have the cash needed to make and market the wonderful gizmo that you have invented. You ask your Grandma, or Auntie Maisie, or the neighbors, anyone who believes in you to put up the cash in return for a stake in the rewards when your great invention starts to sell like hot cakes.
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How Share Prices are Set?
The prices of shares on a stock market can be set in a number of ways. The most common way is through an auction process where buyers and sellers place bids and offer to buy or sell. A bid is a price at which somebody wishes to buy, and an offer (or ask) is the price at which somebody wishes to sell. When the bid and ask coincide, a trade is made.
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What is Stock market Index?
A stock market index, also known as a stock index, measures a section of the stock market. In other words, the index measures the change in the share prices of different companies.
A market index tracks the performance of a specific "basket" of stocks considered to represent a particular market or sector of the U.S. stock market or the economy.
There are indices for almost every conceivable sector of the economy and stock market.
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Where do shares come from?
Shares are issued by the company when it is set up. Investors put money in to get the company going. Premises have to be bought or rented, machinery may be needed, staffs have to be paid, materials bought … all this before any money comes in from customers. In return, the investors are allocated a stake in the company.
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What are the different ways of creating New Shares?
There are occasions when companies already listed on the stock market may create more shares:
Rights issues. Existing shareholders are given the right to buy more shares at a set price
• Placings. New shareholders are given the opportunity to buy shares at a set price. Placings may also include the right for existing shareholders to participate
• Bonus issues. Existing shareholders are given extra shares free in proportion to their holdings
• Share splits. Each existing share is divided into two or more share
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What are Shareholder perks?
A minority of companies offer shareholders discounts on their products or services. These include jewelry, clothing, food and drink, airfares, new and used cars, and magazines. For example, Eurotunnel offered its original shareholders three free trips through the Chunnel each year, while various housebuilders have offered thousands of pounds off one of their new homes.
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What's the advantage of Stock market?
People will be far more willing to put their faith and their life savings into your venture if they have the reassurance of knowing that, should they want to get out, they can do so readily. The stock market provides the reassurance that it will bring together buyers and sellers on a trading platform where the price of the transaction will be set according to supply and demand.
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Who are Stock Brokers?
A stock exchange provides a platform where trading can be easily conducted by matching buyers and sellers of stocks. For the average person to get access to exchanges, they would need a stockbroker. This stockbroker acts as the middleman between the buyer and the seller. Getting a stockbroker is most commonly accomplished by creating an account with a well-established retail broker.
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How does Stock Market Index help in investment decisions?
A stock market index tracks the ups and downs of a chosen group of stocks or other assets. Watching the performance of a market index provides a quick way to see the health of the stock market, and helps you gauge the performance of your investments.
In investing, an index tracks the performance of a group of assets or a basket of securities, such as a list of publicly traded companies and their stock prices. Investors use indexes as a benchmark to gauge the performance of any one stock, bond or mutual fund against overall market performance.
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Are shares one form of equities?
Shares are often referred to as equities. They represent ownership of the company, just as you have equity in your house: the percentage of your house that you own when the building society’s loan is deducted.
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What is Primary Market?
The primary market is the creation and sale of new shares. Most of the time you will be buying second-hand shares.
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What are Dividends?
Most companies pay dividends, which come out of their profits. This is similar to receiving interest from a savings account in a bank. You get a flow of income without touching the capital invested. If you want to invest for income, say you are retired and want to put your nest egg where it will provide you with a regular supply of cash to live on, then you will look for companies paying a dividend that is increased year by year. This is known as a progressive dividend.
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Which are the two Major Stock Exchanges in the U.S?
The two major U.S. financial securities markets are the New York Stock Exchange and Nasdaq.
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Does laws of Supply and Demand relevant in the stock exchange?
The stock market offers a fascinating example of the laws of supply and demand at work in real-time. For every stock transaction, there must be a buyer and a seller. Because of the immutable laws of supply and demand, if there are more buyers for a specific stock than there are sellers of it, the stock price will trend up. Conversely, if there are more sellers of the stock than buyers, the price will trend down.
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Why should we check the income statement before investing in shares?
For investment in shares, companies with rising sales/revenue are preferred. If revenues are down we would need a persuasive explanation before considering the company as an acceptable investment.
Also, if the company shows a loss in consecutive years it has serious problems and you will need a pretty good explanation to even think about buying the shares.
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What are the difference between running a company and owning?
The day-to-day running of the company will be carried out by a board of directors who may act as if they own the company but they do not. It is you, and the other shareholders, who are the owners. The directors do have the right to own shares. Indeed it is normal for them to buy shares as a show of faith in the company they are running. They have exactly the same rights as shareholders as you do.
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What is IPO?
When a company decides that it wants to raise money by issuing shares to the public for the first time it will make what is called an initial public offering (more usually referred to by the initials IPO). This is also dubbed as coming to market or a flotation.
After a company goes public and starts trading on the exchange, its price is determined by supply and demand for its shares in the market. If there is a high demand for its shares due to favorable factors, the price would increase. If the company's future growth potential doesn't look good, sellers of the stock could drive down its price. The market cap then becomes a real-time estimate of the company's value.
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What is Market Capitalization?
Market capitalization refers to the total dollar market value of a company's outstanding shares of stock. Commonly referred to as "market cap," it is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.
As an example, a company with 10 million shares selling for $100 each would have a market cap of $1 billion.
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What is a Stock Market?
The stock market, like any market, is where you buy and sell new and second-hand goods, in this case, shares in a company. Companies willingly pay a fee for a stock market listing because it is easier to persuade investors to buy shares if they can be sold easily at a later date.
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What is Stock Exchange?
Stock exchanges are secondary markets where existing shareholders can transact with potential buyers. It is important to understand that the corporations listed on stock markets do not buy and sell their own shares on a regular basis. Companies may engage in stock buybacks or issue new shares but these are not day-to-day operations and often occur outside of the framework of an exchange.
So when you buy a share of stock on the stock market, you are not buying it from the company, you are buying it from some other existing shareholder. Likewise, when you sell your shares, you do not sell them back to the company—rather you sell them to some other investor.
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What information from the balance sheet can we use before investing in shares?
It is possible to assess the overall health of the company and whether it is moving in the right direction before buying shares of a busines.
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What are Preference Shares?
These are in fact more like loans than shares. Preference shareholders do not have voting rights except on issues that specifically affect them. They receive a set rate of interest, usually twice a year, just as you would receive a rate of interest on a savings account in a bank or building society.
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What are Share Options?
The directors and other key executives may be awarded share options, which means they have the right to buy a set number of shares at a set price. Share option schemes are designed to provide an incentive to management. The price the managers have to pay to buy the shares is fixed, often at quite a cheap price, so they can pocket a profit by buying the shares cheaply and selling them at a higher price. The better the company is doing, the more the shares will be worth and the bigger the profit the managers can make on their options. Buying shares in this way is called exercising the options.
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What is Share Price?
Before an IPO, the company that wishes to go public enlists an investment bank to employ valuation techniques to derive a company's value and to determine how many shares will be offered to the public and at what price. For example, a company whose IPO value is set at $100 million by its investment bank may decide to issue 10 million shares at $10 per share or they may equivalently want to issue 20 million at $5 a share. In either instance, the initial market cap would be $100 million.
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What is NYSE?
The NYSE is a stock exchange based in New York, founded in 1790.1 In April 2007, the New York Stock Exchange merged with a European stock exchange known as Euronext to form what is currently NYSE Euronext.2
NYSE Euronext also owns NYSE Arca (formerly the Pacific Exchange). In order to be listed on the New York Stock Exchange, a company must have upwards of $4 million in shareholder's equity.
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How buyers are matched to sellers in a Stock market?
Some stock markets rely on professional traders to maintain continuous bids and offers since a motivated buyer or seller may not find each other at any given moment. These are known as specialists or market makers.
Matching buyers and sellers of stocks on an exchange was initially done manually, but it is now increasingly carried out through computerized trading systems. The manual method of trading was based on a system known as the open outcry system, where traders used verbal and hand signal communications to buy and sell large blocks of stocks in the trading pit or the exchange floor.
However, the open outcry system has been superseded by electronic trading systems at most exchanges.
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Which business should I choose to buy shares?
Assess the company:
Are sales rising?
Management
Find information about listed companies
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What is Nominal Value?
Each share has a nominal value. This was the value of each share when the company was originally formed. If you have a penny black stamp in your possession, it was originally issued back in 1840 for 1p. That is its face value, not its value today. It can be sold for whatever a stamp collector is prepared to pay for it. Similarly, you should not expect to pay the nominal face value of a share. You have to pay whatever price the share commands on the stock market.
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Can Share be Cancelled?
Shares can be canceled as well as created. When a company is taken over, the new owners often buy all the shares from the existing shareholders and scrap the lot.
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Why would I buy shares?
Investing in the stock market carries risk, but when approached in a disciplined manner, it is one of the most efficient ways to build up one's net worth. While the value of one's home typically accounts for most of the net worth of the average individual, most of the affluent and very rich generally have the majority of their wealth invested in stocks.
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What is Nasdaq?
National Association of Securities Dealers Automated Quotation System (Nasdaq)
Nasdaq is the largest electronic screen-based market. Created by the National Association of Securities Dealers (NASD) in 1971, it is popular because of its computerized system and relatively modern, as compared to the New York Stock Exchange. It currently offers lower listing fees than NYSE and includes some of the largest companies, such as technology giants Apple, Google, Amazon, and Microsoft.
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What are the benefits of Stock Exchange Listing?
Until recently, the ultimate goal for an entrepreneur was to get his or her company listed on a reputed stock exchange such as the NYSE or Nasdaq, because of the obvious benefits, which include:
- An exchange listing means ready liquidity for shares held by the company's shareholders.
- It enables the company to raise additional funds by issuing more shares.
- Having publicly tradable shares makes it easier to set up stock options plans that can attract talented employees.
- Listed companies have greater visibility in the marketplace; analyst coverage and demand from institutional investors can drive up the share price.
- Listed shares can be used as currency by the company to make acquisitions in which part or all of the consideration is paid in stock.
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What Is the Dow Jones Industrial Average (DJIA)?
The Dow Jones Industrial Average (DJIA), also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange (NYSE) and the Nasdaq. The Dow Jones is named after Charles Dow, who created the index in 1896 along with his business partner Edward Jones.
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What is Issued capital?
How many shares a company issues is decided by the company itself. There is no fixed number of shares. The number of shares will depend basically on how much capital the company has needed to raise, not only when it was first set up but also at any time subsequently. The shares that have actually been sold by the company to shareholders are the issued share capital (this is also referred to as the called-up capital).
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What is Treasury Share?
Occasionally a company may buy its own shares cheaply in the hope of reissuing them later at a higher price. While these shares are held in abeyance they are known as treasury shares.
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Are there any disadvantages in companies listing in the stock market?
- Significant costs associated with listing on an exchange, such as listing fees and higher costs associated with compliance and reporting.
- Burdensome regulations, which may constrict a company's ability to do business.
- The short-term focus of most investors, which forces companies to try and beat their quarterly earnings estimates rather than taking a long-term approach to their corporate strategy.
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What are the major indicators or indexes of market movement?
In the United States, there are three major indicators, or indexes, of market movements: the Nasdaq Composite, the DJIA or "the Dow", and the Standard & Poor's 500 (S&P 500).
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What is Part paid shares?
When you buy shares you will almost invariably have to pay up the full amount due immediately but on very rare occasions you may pay for the shares in instalments.
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What is earnings per share?
All companies are obliged to show earnings per share somewhere within the income statement. This is very important to you. It is calculated by dividing the profits after tax by the number of shares in the issue and shows the amount of profit for each share that you hold.
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How to understand The DJIA as a Dollar Value?
To figure out how a change in any particular stock affects the index, divide the stock's price change by the current divisor. For example, if Walmart (WMT) is up $5, divide five by the current divisor (0.147), which equals 34.01. Thus, if the DJIA was up 100 points on the day, Walmart was responsible for 34.42 points of the movement.