The stock market is popularly known to be both a place of great loss and high profits. And to be honest these views are both true.
However, your level of understanding of how the stock market works determines which of the two views you experience. Those who understand how the stock market works enjoy the enormous wealth that lies in it. You cannot understand how the stock market works without being familiar with the day-to-day vocabulary used.
Check out this blog post on: Stock market terms you must know as an investor in the Nigerian Stock market
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In this blog post, we will be unravelling the financial ecosystem that is the Nigerian Stock market, exploring some core components- Stocks, IPOs, and Exchanges.
What are Stocks?
Stocks are financial securities that represent ownership in a company. When a company decides to raise capital, they can sell ownership of their company in the form of stocks. Which are then divided into single units called shares. For example, company ABC needs to raise capital so they put out a part of their company on the stock market in the form of stocks. As an investor, you can then buy stocks and become a part owner of the company. Now, if the company puts out its stock of 100 shares and you purchase 10 shares you have a 10% ownership in the company. There are two main classes of stocks: common stock and preferred stock. Common stocks give shareholders voting rights in the company, while preferred stocks offer investors dividend payments.
Initial Public Offering (IPO)
An Initial Public Offering (IPO) marks the first time a privately held company offers its shares to the public. During an IPO, the company works with investment banks to underwrite and issue its stocks to investors. This process involves extensive regulatory scrutiny to ensure transparency and compliance with securities laws. For a company going public through an IPO offers several advantages, including access to capital for expansion, increased visibility, and liquidity for existing shareholders. On the other hand, IPOs also come with risks and challenges, such as market volatility and heightened regulatory requirements.
Stock Exchanges
Stock exchanges serve as the primary platforms where stocks are bought and sold. These exchanges facilitate orderly trading by matching buyers with sellers and providing a centralized marketplace for price discovery. Some of the world’s most prominent stock exchanges include the NYSE, Nasdaq, London Stock Exchange, and Tokyo Stock Exchange. They also play a crucial role in maintaining market integrity by enforcing rules and regulations, monitoring trading activities, and disseminating market data to participants.
Stock Market Vs Stock Exchange
Although these terms are used interchangeably, they refer to different aspects of the financial system. The stock market encompasses a network of exchanges where financial securities are traded. While a stock exchange is simply a platform for brokers and dealers to carry out transactions. The stock market serves as the backbone of the global economy, enabling companies to raise capital, investors to build wealth, and economies to grow.
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