What Are Shares and What Is the Stock Market?

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You *literally* own the company

• Shares represent part ownership of a company. Traditionally, a share has represented a portion of a company available for investors to purchase. 
• Reasons to issue shares include raising capital for business growth, launching new products, remaining solvent, or acquiring additional assets.
• A stock market is a marketplace where shares are bought and sold. There is no one stock market, but rather, numerous stock markets located in different parts of the world.

What Are Shares?

First and foremost, this is a good time to state that stocks, shares and equities are all interchangeable terms! Which term is most popular varies from country to country. 

Shares represent part ownership of a company. Traditionally, a share has represented a portion of a company available for investors to purchase. In today’s world, fractional shares are becoming increasingly popular. Shares can be bought and sold, meaning they have a monetary value.

In an investment sense, shares represent ownership of part of a firm's future earnings. This explains the impact of future performance projections on daily share prices.

What Does It Mean When Experts Talk About “The Value” of a Company?

There are many things they may be referring to, but in most cases, they will simply be referring to the Market Capitalization (or "Market Cap") of a company. The definition of market cap is the number of shares in the company multiplied by the last traded price of that company's shares on the stock exchange. It is a mechanical calculation. Let’s say that a share’s latest trade was of just one share, which happened to trade at 10% lower than where it had been trading all day. The company would be deemed to have lost 10% of its value!

Why Are Shares Issued?

Shares are issued initially for numerous reasons:

• Raise capital for funding the growth of a business into new markets/regions
• Launch new products 
• Remaining solvent (pay off debt)
• Acquire additional assets

What Is the Stock Market?

A stock market is a marketplace where shares are bought and sold. There is no one stock market, but rather, numerous stock markets located in different parts of the world. Examples include:

• New York Stock Exchange (NYSE) 🇺🇸
• London Stock Exchange (LSE) 🇬🇧
• Hong Kong Stock Exchange (HKSE) 🇭🇰
• Singapore Exchange (SGX) 🇸🇬

At a stock exchange, investors can buy and sell shares, exchange-traded funds, and more. The exchange functions as a marketplace, with buyers looking to buy a stock for as little as possible and sellers trying to sell for as much as they can get away with. 

When trading on a stock exchange, we have next to no idea who we are buying from or selling to as we are operating through the secondary market. Without a stock exchange, we would have to trade with our close associates!

Companies must meet strict criteria and (usually) have excellent financial records to be listed on a stock exchange. 

Stock Market Index

A stock market index measures the performance of a stock market or a subset of a stock market. When you hear about a stock market being up or down, it’ll reference the performance of a stock market index. Investors use stock market indexes to compare prices with previous market performance. Below are some examples of stock market indexes:

• S&P 500 - 500 of the most valuable stocks in the USA
• Dow Jones Industrial Average - The 30 most valuable "Industrial" stocks in the USA (perhaps the most prestigious index of all for a company to belong to)
• FTSE 100 - 100 of the most valuable stocks in the UK

STOCK INTRODUCTION. COMPLETED. ✅

Sources:

1. Header photo by Unsplash
2. https://www.ft.com/content/51ea47e1-50c1-4b72-94d6-884017a1af4a