Explaining Stocks and the Stock Market – How the System Works
Every corporation issues stocks, but not all stocks are bought and sold on the stock market. When most corporations form they issue stock to the founders of the company and, in some instances, to a limited number of investors. This type of stock is issued in what are called private, and sometimes Regulation D offerings. Shares of stock issued in this manner are called control and restricted stock respectively, and can only be sold publicly under certain conditions.
After they become successful many corporations will decide to make an Initial Public Offering (IPO) of stock which then allows anyone (the public) to buy and sell (trade) the shares on the stock market. Stock markets (there are many stock markets around the world, not just one) are places, whether real or virtual, that allow the public trading of stocks.
Stocks give the holder partial ownership in the company that issues the stock, and in the case of common stock also gives the holder some voting rights. Stocks may also pay the holder dividends which are a share in the profit of the issuing corporation.
When a company makes an Initial Public Offering (IPO) of stock it is sold to the public on the primary stock market. On the primary market securities are created and sold directly from the issuing company to the public. Once the security is created and sold on the primary market, all subsequent trades of that same security will be make on the secondary market. On the secondary market, the issuing company is no longer involved in the trading of its stock.
Stock values rise and fall depending on a wide variety of factors. Investors who trade stocks pay attention to the value of a stock differently depending on why the stock was purchased. If the stock was purchased at a low price with the hope to sell it again at a higher prices, then the current sale price of the stock is most important. But if the stock was purchased to pay dividends the investor will pay attention to the Yield Percent and the Price-Earnings ratio. Both of these numbers let the investor know how well the stock is doing in terms of dividend payments.