A stock market, or equity market, is an arrangement in which stock is bought and sold by shareholders (the people who are buying the stocks). The buying and selling of stocks are done via stock market exchanges, also known as exchanges. These exchanges come in many different forms and handle different kinds of stock. They can be floor-standing open-outcry or over-the-counter trading systems, which have higher transaction costs and less liquidity than over-the-counter trading.
An equity market is used by families and individuals to buy and sell shares of ownership in companies. Most commonly, the stock market is used to represent groups of households headed by one person. Many families are able to purchase multiple shares because they are part of larger groups and have a similar interest. The shares are often held in a custody account until an investor decides whether to sell them. Alternatively, shares can be purchased directly from a company, through an auction, or in a brokerage account with a broker.
There are different kinds of stock markets, and they all have different purposes. Frequently traded stocks are usually offered through exchanges. These exchanges are owned by large financial institutions, like banks. Large corporations generally own their own exchanges and sell shares of ownership in millions of shares per day. Common stocks are traded among individual investors on the over-the-counter bulletin board market. Some stocks are traded in over-the-counter markets, but most stocks are traded on exchanges.
There are many different kinds of shares and stock exchanges. Some common ones include the New York Stock Exchange (NYSE) and the NASDAQ stock exchange. Additionally, there may be specialty stock exchanges where stocks of certain companies are exchanged. Examples of these types of specialized stock exchanges include the Pink Sheets and the Nasdaq.
Investment funds are another type of share available on the stock market. Funds are usually made up of different kinds of investments are designed to increase the overall return of investors’ portfolios. Common fund investments may include retirement and pension funds, real estate funds, and some forms of hedge funds.
Finally, the futures market provides opportunities for households and other organizations to trade shares and stocks. Futures is the term used to refer to the buying and selling of stocks and options on particular dates in the future. This system has been around for many years and is basically managed by financial institutions with the participation of central banks. Central banks may participate in the futures market to help influence interest rates or provide interest rate guarantees to households and other financial institutions.