How
often
have you
heard
people
say that
investing
in
stocks
and
shares
is like
gambling?
The
truth is
that
investing
in
stocks
is
gambling
in the
same way
as doing
any
business
is
gambling
because
there is
always
an
element
of risk
in every
business.
What
is a
stock?
A
stock,
in
simple
words,
is a
share in
the
ownership
of a
company.
Starting
and
expanding
a
company
on a
large
scale
needs
capital,
something
which
individuals
or group
of
individuals
cannot
afford.
The
company,
therefore,
offers
to sell
its
share to
the
general
public.
When a
company
sells
it's
privately
held
shares
to new
investors
for the
first
time, it
is
called
an
IPO-Initial
Public
Offering
or going
public.
For
example,
when you
start a
company
you can
issue
five
shares
to raise
capital.
So each
share
would be
worth
20% or
one
fifth of
the
company's
ownership.
Therefore,
if an
individual
holds
one
share
and buys
another,
he owns
40% or
two
fifth of
the
company.
It must
be
understood
that in
normal
course a
stock,
share or
equity
mean the
same
thing.
The
idea
underlying
the
ownership
of a
stock is
that the
shareholders
can make
claims
to the
profits
and
assets
of the
company.
The
fact,
however,
remains
that
every
public
traded
company
normally
issues
millions
of
shares.
Therefore,
owning a
few
shares
does not
mean
that you
can
visit
the
company
any time
and
start
issuing
orders
or
inspecting
the
records.
A stock
holding
only
gives
you
certain
rights
such as
voting
to elect
the
board of
directors
of the
company
or owing
some
assets.
Normally
the
ownership
of stock
is
represented
by an
attractively
designed
and
important
stock
certificate,
which is
actually
a piece
of paper
that
represents
a share
or
ownership
of the
company.
With the
advancement
of
technology
investors
usually
do not
get
those
paper
certificates
like
their
old time
counterparts.
Stock
ownership
is,
therefore,
recorded
electronically.
Transfer
of
shares
The
stock
is,
moreover,
held in
street
name.
Street
name
means
that the
stock is
held in
broker's
name and
not in
the
customer's
name.
This
allows
the
ownership
to be
transferred
more
easily
when a
stock is
bought
or sold.
This is
a time
saving
procedure
for the
investors
as they
do not
have to
go down
to the
broker's
office
every
time
they
wish to
buy or
sell
their
stock.
How do
the
stocks
trade?
Suppose
you want
to buy
or sell
stocks.
Would
you like
to
advertise
your
intention
to buy
or sell
them in
the
local
newspapers?
And what
if you
don't
find
buyers
or
sellers
even
after
advertising?
It is
precisely
to
answer
all such
issues,
the
stock
exchange
came
into
existence.
The
exchanges
act as
intermediaries
between
the
buyers
and
sellers
and
facilitate
stock
trading.
Typically,
electronic
exchanges
are more
efficient,
which is
why even
the
face-to-face
exchanges
normally
have
electronic
transaction
services.
There
are two
main
types of
exchanges,
physical
and
virtual.
Physical
stock
exchanges:
As the
name
itself
suggests,
these
exchanges
have a
physical
presence
or in
other
words,
they are
located
in
buildings.
Virtual
stock
exchanges
are
electronic
exchanges,
which
are
linked
through
computer
networks.
The
entire
process
of stock
trading
takes
place
electronically
or
online.
Typical
examples
of stock
exchanges
are the
NYSE,
NASDAQ
and
AMEX.
NYSE
NYSE
or the
New York
Stock
Exchange
is an
example
of a
physical
stock
exchange
where
trading
takes
place
face to
face.
Whenever
you hear
the term
"listed
exchange",
it
refers
to the
NYSE. Of
course
computers
do
assist
in the
trading
process.
NASDAQ
The
NASDAQ
market
is the
virtual
exchange
also
known as
the
OTC-over
the
counter
market.
There is
no
trading
floor,
no
specialist,
and no
central
location.
Instead
all the
trading
takes
place
via a
computerized
network
of
dealers.
AMEX
The
American
Stock
Exchange
or the
AMEX is
the
third
largest
stock
exchange
in the
US.
Prior to
NASDAQ's
emergence,
it was
the
second
biggest
exchange.
Currently
the
stocks
traded
at the
AMEX are
primarily
the
small
cap or
the
lower
market
capitalization
when
compared
to
larger
companies.
