WHAT IS A STOCK MARKET?

“I want to be so rich, that when I write a cheque, the bank will bounce”
– Robert Allen in “ Multiple Streams of Income” stock market (or capital market) is a place where stocks, bonds, and other securities are traded. A stock exchange is the body that runs a stock market.


Some stock markets are not run by any major body, but are coordinated by their
dealers. These are termed over the counter (OTC) e.g. the NASDAQ in America. The
stock market in Nigeria is run by the Nigerian Stock Exchange (NSE).


Functions of the stock exchange.

The stock exchange helps companies generate capital. As a primary market, it
provides an avenue for them to sell new shares and bonds to investors. The
companies can then use the proceeds from these sales to expand their businesses,
develop new products, buy new equipment etc.


The stock market also provides a means for investors to trade in the shares of
companies they own among themselves. In other words, it serves as a secondary
market. For example, one who bought the shares of a company at a particular price
may sell it to another investor. The investors are the ones who profit from this type of trade – companies do not.


The stock exchange also has the function of upholding rules and regulations so that
shady people do not cheat investors of their hard earned money. It gives investors
security. The stock market also provides a means for investors to trade in the shares of companies they own among themselves. In other words, it serves as a secondary market. For example, one who bought the shares of a company at a particular price may sell it to another investor. The investors are the ones who profit from this type of trade – companies do not. The stock exchange also has the function of upholding rules and regulations so that shady people do not cheat investors of their hard earned money. It gives investors security