What is the Stock Market? Features

Published:2 October 2017 Updated:4 January 2024

The stock market is, according to Wikipedia, a set of economic relations regarding the issue and circulation of securities between its participants.


The stock market, in addition to economic, includes other relations (legal, social, etc.), which are designed to provide a constant circulation of securities required for investors (individuals) who are important to receive personal income (for personal purposes: buying an apartment, etc.), as well as companies that place their shares to receive stable investments, which are needed to develop business and optimize its processes.

Now many of us are starting to think seriously about gaining additional income by trading in financial markets, this can be trading in cryptocurrencies,  binary options, in the Forex market. When studying the possibilities of financial markets, you will definitely see the phrase “stock market”. Still, why do we need the stock market, and can it be useful for a common person, who is looking for ways of additional income? We answer these questions in our article.

Generally speaking, this is a set of rules and mechanisms that allow the trading of securities with the help of norms. This market is subject to clear rules and regulations, it is strictly regulated and this is its difference from OTC trading (for example, the largest OTC trades are held in the RTS Board system (official website), MOEX (official website), in the U.S. – NASDAQ (official website)). The over-the-counter market is another type of securities market, where transactions in securities take place outside the stock exchange.

Participants of such market are different persons, who find each other through intermediaries: large investors, financial institutions, dealers, who do not want to conduct transactions in the official way, i.e. through the exchange. Also more often out-of-exchange transactions are carried out with assets, which do not meet the rules of admission to trading at the exchange (which are also called stock exchange listing), these are mostly assets of small companies.

The main advantage of such trading is that participants do not need to adhere to strict rules: “you can trade from any part of the planet in any volume of stock. Such trading is beneficial to those participants who cannot make a trade for various reasons, for example, due to low liquidity of the asset on the exchange, which is less profitable for the investor.

The OTC market differs in the absence of a single center, which would manage the process, including the pricing of assets, today it is a network of dealers conducting transactions through information systems. These markets differ in the order of price formation: on the exchange bids seem to “flow” into one place and then market participants are brought together, while on the OTC market the deals are made between a client and a dealer (who, having bought assets earlier, wants to sell them at a better price for himself); the price of assets on the exchange is available to all participants, while on the unofficial market the price is known only to the dealer, who made a deal with the interested client.

However, it is more common to define the stock market as a place where via brokers and the functionality provided by them pass traders’ transactions. In addition, the stock market allows you to create and maintain the turnover of different securities, so its synonym is often justifiably considered another definition – “stock market”, for example, in Wikipediawhich, it should be noted, is more general, covering also over-the-counter trading.

Combining completely different parties with their own interests, the stock market today acts as one of the attractive and profitable instruments of competent investment in assets:

  • those who have money and would like to increase their amount and those who would like to earn it,
  • companies that are interested in receiving outside investment, expanding the staff of investors and those who have money and want to invest their capital profitably (in order to enter the management team of the company, to receive a stable income from dividends),
  • brokers, offering a service for comfortable uninterrupted trading and investors wishing to profitably purchase or sell assets – various securities of major organizations (from the food industry to oil, automotive, construction magnates).

This market is the most stable during economic instability. It makes it possible to buy (sell) assets for the purposes of becoming part of the management team of a business (investors) or earning income on the difference of transactions (speculators). The age of information technology has made it possible to work with global stock exchanges literally from home, and mobile devices offer universal access to trading. Modern stock exchanges offering stock trading services do not need offices, all work is done in a convenient electronic form.

What is the stock market? In detail in the video

Video taken from the channel Tradimo Russian on YouTube

History of stock market development

The first prototype of stock markets appeared and fully functioned in the 13th-14th century in the form of bill fairs, where bills of exchange were traded – written obligations, which guaranteed to the owner the receipt of a specific amount. In France, from 1304 onwards, these were initially exchangers. In the 14th century the state began to issue securities, the first stock exchanges appeared. Further, in the 16th century, the development of the process of trading in shares contributed to the widespread emergence of stock exchanges. It is interesting that the stock exchange in Bruges, according to WikipediaIn 1592, the first stock exchange serving foreign investors published data on the value of the securities it offered, and it is this date that has since been called the birth date of all stock exchanges.

The rapid spread of stock markets was influenced by the development of securities, the widespread emergence of joint-stock companies (English, Baltic, East India Company, for example), which pooled private funds for transactions and allowed the owners of shares to earn income. For example, the Amsterdam Stock Exchange served shares of the popular East India Company, allowing cash settlement in transactions, as well as futures transactions, which formed a speculative market.

It is worth noting that before the 19th century there were few joint-stock companies, and the turnover of their securities was still small, but already at the end of the century the form of ownership with the help of shares, which became especially popular, was widely spread. At that time all the processes of share trading, available today, were worked out at stock exchanges: for example, at the Amsterdam Stock Exchange, the New York Stock Exchange, the English Stock Exchange, etc. Market development in Austria-Hungary, USA, Germany contributed to appearance of specialized exchanges: in Manchester (railroad, textile), Liverpool (insurance companies), Glasgow (shipbuilding, metallurgical industry) and others.

This allowed the formation of legendary exchanges with an impressive history of development. The Amsterdam Stock Exchange, which has been operating since 1611, is today the oldest international stock market. In America, in 1792, the NYSE (Wikipedia), which contributed to the emergence of tycoon empires Rockefeller (Wikipedia), Morgan (Wikipedia), for example. Before 1917, Russia also had a stock and bond market, the development of which was suspended during the revolutions and only after the 1990s the spread of stock exchanges resumed, which is happening very dynamically nowadays. Thanks to the widespread introduction of the Internet, the market is developing right before our eyes.

We offer a more detailed review of the stock market in following article.

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