What Is a Stock?

WHAT STOCK? IS A All companies need money to start or grow their business. One way a com- pany can raise money is to divide itself into little pieces and sell the pieces to investors through what is known as an Initial Public Offering, or IPO. Each little piece is called a share of stock. Each share of stock is entitled to a cut of the company's profits. Dividend: A distribution of a portion of a company's earnings to its shareholders. PROFIT STOCK COMPANY X When a corporation earns a profit or surplus, that money can be put to two uses: it can either RETAINED EARNINGS DIVIDEND be re-invested in the The dividend is paid out to the stock holders. business, or it can be The value of a stock is essentially determined by the principles of supply and demand, If more people want to buy stock in Company X, the value will go up. Conversely, if few people desire to own stock in Company X, the value will decrease. paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend, Shareholder: a partial owner of the company, also has the right to vote on who is elected to the board. For a joint stock company, a dividend is allocated as a fixed amount per share. Fixed amount to each share holder. When a stock is bought, the holder of that stock receives a COMPANY X stock certificate .Now, most traders use the Intemet for paperless transactions. Broker: The one who facilitates a trade between two parties. Shareholders are free to transfer their ownership interest at any time by selling their stockholding to others. BROKER After the company sells their initial offering of stock to the public, anyone desiring to purchase shares of the company must buy them from someone who wants to sell them. This exchange is mediated by brokerages, which charge fees for facilitating trades. A Brief History of the Stock Market 1698 Early 1300s Early versions of stock trading began in France where traders would trade commodities and The London Stock Exchange was founded by John Castaing. The London Stock Exchange is still in operation today. 1971 The NASDAQ was established. It was the first exchange to trade stocks electronically. 1849 The American Stock Exchange (AMEX) was established during the Califormia gold rush and eventually included companies that did not meet the strict guidelines to be listed on the NYSE. government securities. 2010 Today, stock markets exist in most all developed and some developing economies. 1896 The Dow Jones Industrial Average 1602 index was first listed in the Wall The origins of the modem stock market began in Holland at the Amsterdam Stock Exchange where the Dutch East India Company sold the first shares of stock ever. Street Jourmal, representing 12 stocks and valued at 40 points. 1792 The New York Stock Exchange (NYSE), the first in the US, was founded on Wall Street by a group of stockbrokers who wanted to organize what was a chaotic system at the time. Why Buy Stock? Buying a portion of a company means that when the company profits, so do the shareholders. Even though there is great fluctuation within the global markets, time has proven that the markets provide a consistent return over a long period of time. The Dow Jones Industrial Average, one of the most followed indexes, has shown significant and consistent growth over the years. In Julų, 2010 the combined value of the world's stock exchanges was $46.9 trillion US (derivatives not included) Spot Price: The up-to-the-moment value of one share of any given company's stock 15000 $46.9 Trillion 14,066,1 Oct 1. '05 12000 PERCENTAGE OF GLOBAL MARKET 9000 LONDON STOCK EXCHANGE 2528.4 |TOKYO STOCK EXCHANGE Oct 4. '02 NYSE NASDAQ 6,626,9 Mar 6. '09 6000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 259 5.8% Volume: The number of shares that are traded during a given period of time. cmint. .com SOURCES: CNN Money, Google Finance, Investopia.com, Beginnerinvest.com, Hubpages.com, World -Exchange.org, New World Encyclopedia, Swing-Trade-Stocks.com %24