Stock Trading

Stock markets are types of financial markets where investors have the opportunity of trading for equity securities. Each security (share, stock) represent units of ownership in a business (publicly traded company).

A stock exchange is a physical or electronic place where investment dealers (physical or electronic) act on behalf of clients (traders) to find buyers and sellers for clients' securities (stocks and shares). A stock exchange does not dictate prices for stocks, however, the stock exchange establish the rules regulating the trading of equity securities.

Companies must submit application to list their shares for trading on a stock exchange. Each Stock Exchange has regulation that define qualification of the company's shares to be accepted for listing and trading. When the company is listed on an Exchange, it must follow by the rules of an exchange where it is traded. Publicly traded companies receive a number of benefit from listing on an Exchange. The most important benefit is that marketability of the company's shares is increased.

Over-the-counter Markets (OTC Markets).

The equities of companies that are not included into listing on a stock exchange may still be listed and traded on an OTC (over-the-counter) market. An OTC is a network of dealers and brokers that trade equities and bonds that are not traded on the Exchanges. Some business prefer to be listed on an OTC market rather of trading on a stock exchange. Below you may see some of the reasons why:

• a company may not be willing to abide by the information disclosure rules set by an exchange
• OTS market has lower trading volume of share
• companies traded on the OTC market are less attracted to investors
• a company simply was not able to meet the listing requirements set by an exchange

Even OTC market is less popular among investors it still playing its role in the primary market. Many new stocks are traded over-the-counter initially when big number of outstanding shares offered for a sale by a single investor.

The disclosure regulations for the stocks listed on the OTC market are not as strict as the rules implemented by a stock exchange. Corporation listed on an exchange are usually not allowed to be listed or traded on the OTC market and vise versa.

About Stocks

Securities can be divided into two basic groups:

• Stocks (shares) - represent a degree of ownership.
• Bonds - represent debt obligation of the issuers of the bonds.

There are two main type of stocks:

• Common shares
• Preferred shares

"Stock Certificate" is the paper representation of percent of ownership in an incorporated company.

• Private Corporation's stocks are usually owned by a small group of investors and they are not traded with members of the public.
• Public Corporation's stocks are usually available for sale to the general public, via a stock exchange or the OTC market.

All corporations (public and private) are authorized to issue stock (shares). They also may be also authorized issuing debt-type securities, such as bond.

Authorized stock (capital stock) represents the maximum number of shares a corporation may issue or sell. Any stock that was not sold is commonly called as unused stock, or treasury stock. Issued stocks are authorized stock that were sold to an individual investor or other corporation. Individuals who bought shares of a company are referred to as shareholders.