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A
stock market is a private or public market for the
trading of company stock and derivatives of company stock at an agreed
price; both of these are securities listed on a stock exchange as well as
those only traded privately.
The expression 'stock
market' refers to the market that enables the trading of company
stocks (collective shares), other securities, and derivatives. Bonds are
still traditionally traded in an informal, over-the-counter market known as
the bond market. Commodities are traded in commodities markets, and
derivatives are traded in a variety of markets (but, like bonds, mostly
'over-the-counter').
STOCK MARKET
The size of the worldwide 'bond market' is
estimated at $45 trillion. The size of the stock market is estimated
at about $51 trillion. The world derivatives market has been estimated at
about $480 trillion 'face' or nominal value, 30 times the size of the U.S.
economy…and 12 times the size of the entire world economy. It must be noted
though that the value of the derivatives market, because it is stated in
terms of notional values, cannot be directly compared to a stock or a fixed
income security, which traditionally refers to an actual value. (Many such
relatively illiquid securities are valued as marked to model, rather than an
actual market price.)
The stocks are listed and traded on stock exchanges which are
entities (a corporation or mutual organization) specialized in the business
of bringing buyers and sellers of stocks and securities together. The stock
market in the United States includes the trading of all securities listed on
the NYSE, the NASDAQ, the Amex, as well as on the many
regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock
exchanges include the Paris Bourse (now part of Euronext), the London Stock
Exchange and the Deutsche Borse.
Participants in the stock market range from small individual stock investors
to large hedge fund traders, who can be based anywhere. Their orders usually
end up with a professional at a stock exchange, who executes the order.
Some exchanges are physical locations where transactions are carried out on
a trading floor, by a method known as open outcry. This type of auction is
used in stock exchanges and commodity exchanges where traders may enter
"verbal" bids and offers simultaneously. The other type of exchange is a
virtual kind, composed of a network of computers where trades are made
electronically via traders.
Actual trades are
based on an auction market paradigm where a potential buyer bids a specific
price for a stock and a potential seller asks a specific price for
the stock. (Buying or selling at market means you will accept any ask
price or bid price for the stock, respectively.) When the bid and ask prices
match, a sale takes place on a first come first served basis if there are
multiple bidders or askers at a given price. |