Stocks and STOCK MARKET. Vypracovala : Zuzana K unzová. STOCKS (SHARES). A stock or share is an investment instrument It si a security issued by a joint stock company in order to acquire capital for its establishment or further development .
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Stocks andSTOCK MARKET Vypracovala: ZuzanaKunzová
STOCKS (SHARES) • A stockorshareisaninvestmentinstrument • It si a securityissued by a joint stockcompany in order to acquirecapitalforits establishment orfurtherdevelopment. • Stock and shares are certificatesrepresenting part ownershipof a company. • Thepeoplewhoownthem and invest to thecompany are calledstockholder and shareholders.
The Right of stockholders • theright to participate in theprofitsofthecompany in theformof a dividend, • theright to participate in and voteat a General Meeting oftheshareholders(Boardofdirector) • theright to participate in theliquidation balance ofthecompany in case ofitsliquidation. • Stockholders also have theright to subscribe to new stocks when the stock capital of the company increases and in some cases they have the right to purchase the stocks of join-stock companies where established by law (take-over bid).
Dividends are payments made by a corporation to itsshareholdermembers. Itistheportionofcorporateprofitspaidout to stockholders. • The amount of the payment depends on company financial and investment strategies and the right to a dividend is provided to each stockholder so long as the stock or stocks are owned on the decisive day for the payment of dividends. • The price of the stocks generally falls the next day by the net amount of the paid dividend. • The strength of this ownership right depends on the amount of stocks owned by an investor towards the total number of issued stocks. • The rights and obligationts of stockholders is contained in Commercial Code.
Types of shares • According to physical form: • Letter stocks the paper document • Registered stocks entry in the register, only electronic form • According to form: • Non-bearer stocks • This are issued in the name of a person • In paper form, the stocks are transferred by endorsement and its physical delivery. • Registered stocks are transferred by contratc and registration according to law. • The joint stock company has a evidence of stockholders. • Bearer stocks • This stock are free transferable, only by physical delivery.
According to type: • Common stock = ordinary share • It is a basic typ ofstock, • Thisstockdon‘thave a specialrights. • Preference stock = priority share • providetheirownerswithsomeexclusiverights, such as drawing on a guaranteed dividend. • ownersof such shares, however, are not entitled to voteatthe General Meeting. • Employee stock • This stock are always as non-bearerstock • Theowner these stockscanbeonlytheemploeeof joint stockcompany • Employeestocks are issuedfordiscountedprice and as a motivation
STOCK Market • The place where the stock and share we • can bought and sold are called stock market or stock exchange • The stock market or equity market is a public entity for the trading of company stock and derivates at an agreed price. • Someexchanges are physicallocations, wheretransactions are carriedout on a tradingfloor, by a methodknown as open outcry. • Thistype ofauctionisused in stockexchangesandcommodityexchanges wheretradersmay enter "verbal" bids and offerssimultaneously and the use of hand signals. • Theother type ofstockexchangeis a virtualkind, composedof a network ofcomputerswheretrades are made electronically via traders.
Stock market • Actual trades are based on an auction market model 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.
Stock market • The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. • The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. • The liquidity that an exchange affords the investors gives them the ability to quickly and easily sell securities. • Forselectedstocklistings, liquidityissecured by market makerswhoguaranteeinvestorsthepossibilityofcontinuallybuying and sellingtheissue in question.
Stock market index • The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices. • Such indices are usually market capitalization weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.
Example of stock exchange • The New York Stock Exchange (NYSE) is a physical exchange, also referred to as a listed exchange – only stocks listed with the exchange may be traded, with a hybrid market for placing orders both electronically and manually on the trading floor. • The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. • Euronext N.V. is a European electronic stock exchange based in Amsterdam, Netherlands • the Euronext group provides clearing and information services
Market participants • Market participantsinclude: • individualretail investors, • institutionalinvestors such as mutualfunds, banks, insurancecompanies and hedgefunds, • and alsopubliclytradedcorporationstrading in theirownshares. • When the shares are issued for the first time, they are traded in primary market. • Secondary market is a market on which shares can be re-sold.
The nominal value of share – the price written on it – is rarely the same as its market price. • The market price is traded in the stock exchange and this can change every minute, because it depends on supply and demand. • Some markets have market makers, who are traders who qoute bid and offer prices. • The spread or difference of these price is profit or mark-up of market makers.
GO Public … • When successful existing company wants to expand it decides to go public. • It is means change form a private company to a public limited company by selling shares to outside investors for the first time. • Then the company gets advice from investment bank about how many shares to offer and what price. • The company get independent a due diligence, which is examination of a company and its financial situation. • The company produces a prospectus, which is document explains terms of sale and giving information about the company and financial result form previous year. • The company makes a flotation or IPO – an offer of company’s shares to investor.
The points for discussion • Why the existing company decide to go public? • Whichrightshavethestockholders? • Do youknowsomeinvestmentstrategy? • Whosecuretheliquidityofstock • in the market?