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Stocks - Essay Example

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Stocks are a kind of "Security" which will be representative of the equitable share of ownership of a corporation or a business concern. The owners of the stock in a business thus are the equitable owners of the business to the extent of the percentage that they have contributed(Maunder 3rd Ed).This ownership yields them the power or mandate to control the voting rights and have a share in the company's profits which accumulate through dividends /capital appreciation…
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Download file to see previous pages (Maunder 3rd Ed).However Common Shareholders are entitled to rights of pre-emption in the event of the company decision of offering more stock.
Preferred Stock:Preferred Stock pertains to the philosophy of "hybrid security", that is where there is a payment of a fixed dividend to its owners and this dividend does not fluctuate(it does not have to be paid this dividend if. Preferred stock can be either Cumulative( that is giving its owners the right to accumulate dividend payments missed before),Non-Cumulative (where no payment is made available for skipped dividends),Participating(stock with a higher rate of dividend) and Convertible(to shares).
Trading in stocks is carried out at the stock exchange, by individual investors and hedge fund traders. However trading in stocks is no longer limited to the interaction at the Stock Exchange and stocks are also auctioned at the open stock exchange through "Open Outcry" and share purchases can also be made online.An example of the physical/conventional stock exchange model is New York Stock Exchange which is a listed exchange.
How are stocks traded on a listed exchange
Orders for the purchase of stock are entered through the exchange members and go on to the specialists
Once a purchase has been made the specialist will close the difference taking into amount the time considerations.
The details of the trade are recorded and sent back to the relevant brokerage firm.The modern day physical stock exchange is also highly computerised.
An example of virtual listed exchange is NASDAQ which includes trading only over the computer and the traders will be matched through the computer system. Another example of an electronic stock exchange is the The Paris Bourse.
Why are stocks and stock markets an integral part of the Economy
Significant source of funding for large companies in a public way as stocks present a fairly liquid investment option unlike investment in property etc.
Rising stock prices indicate a booming economy and good business investment.
Stock prices are on the top agenda of financial regulators like the state/central bank as any unusual variation in these prices will adversely affect the health of the economy.
Therefore the smooth exchange of stocks and shares facilitates entrepreneurial success and long term success in an economy.
Currently there is an increased trend of investing in stocks rather than government based securities like bonds etc in the developed economic systems like ...Download file to see next pagesRead More
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