What is Stock Exchange and what does it do?
The Stock Exchange is a place that provides software(Trading Engine software) that facilitates people to trade(Exchange, sell or buy) the stocks that they already own or are willing to purchase.
The Stock Exchange is a place that provides software(Trading Engine software) that facilitates people to trade(Exchange, sell or buy) the stocks that they already own or are willing to purchase.
In general, The stock Exchanges don't provide the software directly to retail clients to trade on; Instead, we have to find the authorized brokerage firm that is registered with Exchange. The brokerage companies provide us the Trading software. Most brokerages buy software from vendors specialized in building trading software.
Stock Exchange is a marketplace. Where all the stocks that are listed on the Exchange are available for people to trade. The Stock Exchange is not responsible for stock price variations that happen on day to day basis. The people(traders) who buy/sell stocks contribute to price fluctuations.
What is a Stock or Share?
Stock or share are the words that are used interchangeably.
Share is a portion of ownership in the company with a predefined set of obligations and rights.
When companies need extra capital(basically money) to expand their existing business or to invest in new projects that they think are going to bring extra revenue(money) into the business then that organization can opt to be listed on Stock Exchange by following a set of legal procedures and regulations within the country and the Exchange that want to list their company in.
When a given company/organization decides to list the company on the Exchange, they are essentially offering to sell a portion of the company to potential investors.
Ex:- Let's say the ABC Ltd is worth 100 billion(10000 crores). If ABC Ltd needs 30 billion(3000 crores) for its business expansion, then the it can sell 30% of the ownership to the public which can bring in the cash of 30 billion(3000 crores) into the business. So people like you, me, and the big organizations can buy the ownership in ABC Ltd.
Practically speaking there can be several hundred thousand (lakhs) of people that can buy a piece(portion) of the business. So what ABC Ltd could do is mathematically speaking, they can divide 30 billion(3000 crores) into many possible small equal portions. I have shown 3 possible ways below.
30 million small equal portions: Then each piece is worth 1000 (30 billion(3000 crores) / 30 million)
300 million small equal portions:-Then each piece is worth 100 (30 billion(3000 crores) / 300 million)
3 billion small equal portions: Then each piece is worth 10 (30 billion(3000 crores) / 3 billion)
As you can see each piece/portion can be sold at 1000 or 100 or 10.
Hope you are following the article. Depending on how many portions they want to make the price of the portion/share is determined as 1000/100/10 as shown above.
What is an IPO?
If any organization is offering stocks on the Stock Exchange(market) for the first time then that process of Offering is called IPO(Initial Public Offering). In this Process traders or investors are buying the stocks directly from the Organization itself. This is the reason why it is called Primary Market.
If any organization is offering stocks on the Stock Exchange(market) for the first time then that process of Offering is called IPO(Initial Public Offering). In this Process traders or investors are buying the stocks directly from the Organization itself. This is the reason why it is called Primary Market.
In the above example, ABC Ltd would have decided what would be the initial price(Ex:- 1000/100/10). This price is called the IPO listing price.
Please suggest if there are any changes required.
Please suggest if there are any changes required.
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