Nailah Wright - How the Stock Market Works

Stock can simply be defined as the ownership in a company that results in future inflow of cash in terms of dividend and capital gains of the organization.

Nailah Wright says A simple certificate provides a person with the part ownership of the company. However, the extent of rights that can be exercised over the ownership of the company depends on the type of stock that has been bought.

This is where the securities market comes in. The market is a physical/virtual location where stocks of public limited companies are bought and sold on a daily basis. The brokers representing different companies are present within the market and trade shares of the companies on a continuous basis. The market provides a means to corporations to raise capital in form of equity whereby outflow of capital would grant shareholder certain rights over the assets of the organization.

The stock market is therefore a medium that allows the buyers and sellers to interact on a daily basis so that they can buy and sell shares of large corporations. The buyers and sellers are generally interested in making capital gains from price fluctuations whereby stocks are usually bought when prices are low and sold later when prices increase. Nailah Wright says the market also caters to investors that are looking forward to making long term investments with the aim of benefiting from dividend and capital gains.

The stock market is essentially run by brokers that charge a commission based fee depending on the service provided. The broker might be a full time broker or a discount broker and would charge a service fee depending on the work done. For example, a discount broker charges a lower fee than the full time broker because the discount broker is only involved in conducting share transactions whereas a full time broker is involved in conducting transactions of stocks along with providing sound financial advice.