All the happenings and proceedings of a stock market tend to eat up a major portion of the media attention & limelight. However, the questions that remain mostly unanswered usually include: what is the functioning of a stock market? Who is the SEC? What is a Dow? What is the main job of a stockbroker? It is not a big surprise that whatever happens in Wall Street ultimately impacts the Main Street’s everyday business, leading on to the basic consumer, i.e. You.

Stock Market – An Overview:

Stock Market or also known as the “equity market” is a public platform where the buying and selling of various companies’ stocks and shares occur. Exchanges are the places where buyers & sellers are brought into contact in a defined & structured pattern. This is the place where stocks are listed & bought or sold. The world famous finance centers include the New York, London, and Tokyo & Germany. The New York Stock Exchange, located on Wall Street is America’s main stock market. Another stock exchange is the Nasdaq which originally dealt only with over-the-counter (OTC) securities, but now it has all kinds of securities listed. Whether stocks would get listed on NYSE or the Nasdaq is determined by the listing criteria but usually technology firms tend to get listed on the latter.

Oversight And Regulation:

Now the question that comes to mind is that who governs and looks upon the happenings in the stock markets of a country. For that we have the SEC i.e. Securities & Exchange Commission. SEC is that regulatory body which is tasked with supervision of the stock market & it is not influenced in any way by the ruling body of the country. The agency states that its mission is to maintain a fair & unbiased trading, along with the protection of investors, maintenance of efficient markets & facilitation of capital markets.

Types Of Securities:

Two main types of securities exist, which are as under:

1- Over-the-Counter (OTC) securities:

These are traded directly between the buyers & sellers, mostly via a dealer. They are listed on the pink sheets instead of being on any exchange. Pink sheets specifies that these securities do not meet the general criteria for being listed up on the exchange & usually belong to a company with shallow stocks with thin trading, e.g. bankrupt companies are listed here. These securities also do not follow the SEC requirements and thus are very hard to keep a tab on. This lack of information results in pink sheet investment similar to investments in private companies wherein investors should be watchful enough of the security’s credentials.

2- Listed Securities:

Simply put, these are those that are listed & traded in the Stock Exchange. They comply with the needs of SEC as well those of the exchanges where they are listed.

The Players:

The main players associated with a stock market include; brokers, analysts, portfolio managers, traders & bankers. They have been distinctive yet intertwined roles to play. Stock Brokers are those who buy and sell securities in place of the investors, acting as an interface between the stock exchange & the investors. Stock Analyst’s job is to analyze the stock and categorize them as “buy, sell or hold”. This research is made use of by the investors during trading of the stocks. Portfolio managers, as the name indicates, manage portfolios of the investor clients. They work in collaboration with analysts, getting counseling from them on the trading decisions for the portfolio. Usually companies & funds employ these managers for their dealings. Investment bankers include the companies that want to change their statuses via IPO, e.g. private companies wanting to go public or those engaged in pending mergers or acquisitions.

Measurement:

The changes in stock markets are measured in indexes. There are a variety of indexes designated to different collections of stocks. The most commonly heard & reported index is the Dow Jones Industrial Average (DJIA). It encompasses the 30 largest stocks of U.S. their daily performances are shown by the daily Dow. The Dow average is based on the price of stocks thus known as the price-weighted average. Next in line is the S&P 500, which covers 500 biggest capitalization stocks that are being traded in the U.S. These two can be said to be the giant indexes and determine & represent the overall economy of the country and are the most commonly followed. Indexes such as the Russell 2000 are for small and mid-sized U.S. companies.

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