If you are new to stock market investing, it may feel like a foreign language. Don’t worry, though. Many investors speak English in the stock market today. So, it won’t be difficult to learn the basics of stock market terminology.
The term stock exchange is sometimes used interchangeably with the stock market. A stock exchange, or equity market, is the collective buying and selling of shares of ownership in companies; these can include securities listed on a stock exchange such as the New York Stock Exchange (NYSE). Other exchanges may exist in other countries, but most major stock exchanges are located in U.S. cities. These exchanges allow companies to list their shares for trading on their own markets.
The majority of exchanges require companies to list their shares on their exchanges. Before a company can list its shares on an exchange, it must comply with listing requirements. These requirements can differ from one stock exchange to another. The rules and regulations pertaining to the listing of these shares will be found on the company’s web site or by contacting the company. In general many exchanges require companies to file paperwork with the appropriate regulatory body. This paperwork includes: an application, a written declaration, statements of financial information, and other related information.
One of the most common ways of describing the way that the company values its shares is referred to as the market capitalization. Market capitalization is an estimate of a company’s current stock worth. It is not considered a precise measure because many investors use market cap in the same way that they might use the word “appreciation.”
Investors commonly use stock exchanges to raise capital. They typically offer a variety of methods to raise capital, including through private placements, debentures, convertible debentures, preferred stock sales, open market transactions and warrants. Private placements can be used by companies in need of additional financing. These offerings are made to raise money for short-term debt or immediate expansion projects.
Companies that have higher market caps and greater liquidity will generally be able to raise more capital through stock exchanges than companies that have lower market caps and less liquidity. Companies that trade publicly are able to raise more capital through stock exchanges than privately held shares. A company’s stock price is frequently determined by supply and demand. Companies that trade publicly are also able to achieve a higher rate of turnover in their shareholders.
IPOs, or Initial Public Offering, are stock exchanges that allow companies to list their shares for public sale. An IPO is considered a public offering, therefore all of the necessary filings and documentation must be provided to the Securities and Exchange Commission. The IPO will result in a gain to the selling shareholder. The IPO will provide the company with cash to fund the start up and ongoing expenses, as well as make a profit once the company begins producing goods and services. IPO’s typically are priced at a greater premium than a company’s class A stock.
There are two types of Initial Public Offerings; an OTC penny stock, and a conventional open market listing. Penny stocks are considered low risk investments; however they have limited liquidity and cannot be purchased by the general public. OTC stocks are traded on major exchanges and they may be purchased by investors who are not registered brokers. Both kinds of Initial Public Offerings are successful for many businesses, but there are risks involved in both strategies, and investors should research the companies thoroughly before participating in any given investment.
When an IPO is announced, the shares of stock are sold in the open market. Anyone can purchase shares from anyone else, meaning that there are unlimited buyers. It is not difficult to find OTC stocks because there are many brokerages that list them. While they may offer a lower share price, you will not know if they are really being developed and managed as well as the more established companies. Many investors like to participate in the OTC market to avoid having to pay hefty brokerages for the right to trade in the more established companies. Another benefit of OTC shares is that they can be quickly and easily manipulated by traders.
Investors in the secondary market can purchase shares directly from the company for pennies on the dollar. In this situation, the investors have no rights or responsibilities whatsoever. This sort of investing is considered speculative and should only be practiced by those with significant experience in the stock exchange. For instance, an individual could buy shares of stock for $5 each and then wait a few years until they make the profits they were looking for. If they make no profit, they lose all of their invested money, unless they have kept the stock in a penny stock account. The downside to this sort of investment is that they can lose all of their money in a short period of time.
OTC stocks are just one of the many ways that investors use to access the hot stocks in the stock exchange. For new investors interested in learning about buying and selling shares in the secondary market, it is important to research each type of investment carefully. As new investments are made, news will be of interest, so make sure to keep your ear open for announcements about IPOs.