What is the stock market

Information about the stock market

What is the stock market?

The stock market is the market on which companies issue securities in order to meet their financing needs. Investors who buy such securities become shareholders of the company and receive a dividend. This depends on the earnings that the company generates thanks to this capital and, of course, on the number of shares purchased.

So on the stock market you can buy securities from all companies that are listed on the various financial centers of the world.

 

Organization of the stock market

The stock market is divided into the following sub-markets:

  • A company's shares are traded on the primary market (also known as the issue market or first market) for the first time, i.e. when it is listed on the stock exchange. The initial issue of shares is called an IPO (Initial Public Offering). The capital generated flows into the issuing company.
  • Shares that have already been issued are traded on the secondary market (also known as the circulating market). The financial stocks are sold from investor to investor without any capital flowing into the issuing company.

 

How the stock market works

The stock market works in the same way as most other financial markets, that is, buy and sell orders are placed for listed stocks. An order, which is also called an order, can contain certain conditions, so-called order supplements. These can be price limits or restrictions on the validity of the order.

The orders are executed on the stock market in a specific order. Either the price can be prioritized, then the orders are executed in ascending order, or the time, then they are executed chronologically.

 

There are two ways of listing stocks:

  • The variable or continuous listing relates to shares in major companies. In this case, the price will be quoted continuously during trading hours.
  • Smaller values ​​are quoted at the spot rate: In this case, the rate is updated once a day.

 

The different types of stocks and their specifics

There are different types of securities on the stock market. Below are the main types of stocks and their characteristics.

  • Ordinary shares: These shares, also known as "common shares", are issued by companies when they are incorporated, for a capital increase through cash contribution, or as free shares.
  • Share warrants: These give the holder the right to buy shares with financial advantages at a later date.
  • Preference shares without voting rights: These shares were introduced by the Stock Corporation Act of 1937 and generally offer the right to a higher dividend than other shares, whereby the holder has no voting rights in the general meeting. However, the proportion of these shares in the company's share capital in Germany may not exceed 50%.
  • Shares with double voting rights: As the name suggests, the holder of such a share has double voting rights.

Normal stocks, i.e. common stocks, can usually be traded on the online exchanges.

 

What orders can you place on the stock market?

Buy and sell orders are placed on the stock market on a daily basis. These orders are limited in time and are either placed "unlimited" or with a "limit", ie a minimum sale price or a maximum purchase price.

Such stock exchange orders are issued by investors or issuers and executed by the market participants. There is complex software behind all of these transactions. The dealers' computers are connected to the computers of Euronext or other international exchanges.

 

The United States stock market

There are two major financial centers that trade stocks in the United States:

The NYSE (New York Stock Exchange): This is currently the largest exchange in the world in terms of trading volume and total market capitalization. It has been around since 1972. Due to the merger with Euronext in 2007, it was renamed NYSE-EURONEXT.

NASDAQ (National Association of Securities Dealers Automated Quotation System): This is the second largest stock market in the United States by volume. The exchange was founded in 1971 with a base value of 100 points. The NASDAQ is made up of three stock markets, namely the Global Select Market, the Global Market and the Capital Market. There is also a share index of the same name weighted according to the market capitalization of the listed companies.

 

The stock market in Europe

The European stock exchange on which the shares of all European countries are listed and traded is Euronext. When it was founded in 2000, only the three regulated stock exchanges in Paris, Amsterdam and Brussels belonged to it. Today, however, it is much larger, as other stock exchanges (for example the Lisbon stock exchange and the English LIFFE) have now been connected. In the course of the merger with the NYSE in 2007, the NYSE-EURONEXT became the world's largest exchange platform. In 2013, after the NYSE-EURONEXT was taken over by the Intercontinental Exchange (ICI), Euronext was spun off again and has since been an independent exchange again. The following exchanges belong to it:

  • The Paris Stock Exchange with its leading index CAC 40. This index was introduced in 1987 with a base value of 1000 points and is made up of 40 securities that are reviewed quarterly by a commission of experts. The index is calculated on the basis of the average share prices of the companies included in the composition. The companies are weighted based on their importance for the French economy, whereby the weight of a company must not exceed 15%.
  • The Amsterdam Stock Exchange was founded in 1983. It also represents an important stock market in Europe. Its benchmark index AEX contains the 25 largest market capitalizations in the country. The exchange is managed by the Euronext company. The composition of the index is reviewed quarterly, with the basic adjustment taking place every year in March.
  • The Brussels Stock Exchange was founded in 1991; it is also part of Euronext. Its leading index is the BEL20, which was also introduced in 1991 with a base value of 1000 points. This index contains the 20 stocks of the most important Belgian companies with the highest liquidity. The composition is redefined in each case based on the closing prices of the securities at the end of the year. The new composition will take effect at the first trading session in March. To be included in the BEL20 index, the market capitalization of the respective company must be at least 200,000 times the index value.
  • The Portuguese stock exchange in Lisbon is also part of Euronext. Its benchmark index is the PSI20, which contains the 20 companies with the highest stock market capitalization. It was created in 1992 with a base value of 3000 points. This financial center is also managed by Euronext.

 

The Asian stock market

Last but not least, some information about the various stock markets in Asia.

  • The Shanghai Stock Exchange: Your SSE index contains all the securities listed on this stock exchange. It is an index weighted according to market capitalization.
  • The Hong Kong Stock Exchange: Its benchmark index is the Hang Seng Index (HSI). It was created in 1964 with a base value of 100 points. The securities are divided into 4 categories: Industry and Commerce, Finance, Public Service, Real Estate. The index is maintained by the Hang Seng Indexes Company Limited. It is a subsidiary of Hang Seng Bank, one of the most important banks on this exchange.
  • The Tokyo Stock Exchange is another major stock market in Asia. The benchmark index is the NIKKEI 225 Stock Average. It was introduced in 1949 with an average value of 176.21 yen and a divisor of 225. As the name suggests, 225 stocks are included in its calculation, selected according to their stock market capitalization on the Japanese stock exchange. The index is administered and published by the Nihon Keizai Shimbun newspaper; the composition is reviewed annually.