Introduction to financial markets
In this lesson, we'll take a look at how global stock exchanges facilitate billions of dollars' worth of share trades each day – and how you can take part in the equities markets.
Where are shares traded?
Shares are traded on stock exchanges: markets that are built specifically to handle the buying and selling of equities. Almost every country on the planet has a stock exchange for public companies, and some have multiple.
Stock exchanges are not open 24 hours a day. So, you can only buy and sell shares when the exchange that they’re listed on is open.
List of major stock exchanges
A few notable stock exchanges include:
Hours: 9.30am – 4pm (New York time)
The New York Stock Exchange (NYSE) is the biggest in the world by the value of the companies listed on it, which are worth over $30 trillion. Founded in 1792, notable stocks on the NYSE include Coca-Cola, Goldman Sachs and Walmart.
Hours: 9.30am – 4pm (New York time)
Also located in New York, the NASDAQ is the second biggest stock exchange in the world. Founded in the 1970s to facilitate electronic trading, today it is the home of some the world's most valuable tech companies: including Apple, Microsoft and Amazon.
Tokyo Stock Exchange
Hours: 9am – 11.30am then 12.30pm – 3.00pm (Tokyo time
The TSE is Japan's primary stock exchange, and the biggest in Asia. Nintendo, Softbank and Honda are all listed on it.
London Stock Exchange
Hours: 8am – 4.40pm (London time)
The London Stock Exchange (LSE) is around 450 years old, making it one of the most venerable in the world.
What are stock brokers?
Stock brokers are companies that invest in stocks on their clients’ behalf. Stock exchanges have rules on who can use them to buy and sell shares directly. For most individual investors, that means using broker.
There are three main types of stock broker. Execution-only means they only act on your instruction; advisory means they may recommend specific trades and discretionary means they’ll execute trades without any input from you.
How do companies list on stock exchanges?
When a private company decides to list and go public, they’ll join a stock exchange in a process known as an Initial Public Offering (IPO). This is when a company’s stock is first issued. Markets often get excited by IPOs, as this is the first time retail investors can take their view on a company.
Public companies are subject to more regulations than private ones, so preparing for an IPO can take some time. Once a business is ready to list, they’ll typically offer their stock at a set price and investors can apply to buy shares. Then once the listing is complete, shares in the company can be bought and sold as normal.
You will often see prices for listed shares in the form of tickers. Stock ticker symbols are a short-hand way of writing the names of stocks when listing prices, usually consisting of the exchange a company is listed on followed by a few letters to designate its trading name. The ticker symbol for Apple, for instance, is NASDAQ:AAPL. Lloyds Banking Group’s, meanwhile, is LSE:LLOY.
A company’s market cap (short for market capitalisation) is the total value of all the outstanding shares it has on the market. To calculate a stock’s market cap, you take the total shares it has available for trading and multiply it by its current share price. This gives you the stock market’s value of the company as a whole.
Market cap = Total number of outstanding shares * current share price
What affects the price of a share?
Share prices are constantly moving as demand fluctuates for different economies, industries and companies. Here are a few factors that are likely to cause stock market volatility:
Listed companies must report their revenue, profit and more on a regular basis – usually quarterly, with an in-depth report once a year. Investors will go through these releases in detail, looking to discover how a company is performing now, and how it might perform in the coming years.
News about a company
Positive or negative headlines surrounding a company will often play out on its share price. New product announcements, changes in management or scandals can all cause demand to rise or fall. Volkswagen’s emissions scandal in 2015, for example, hurt its stock price significantly.
News regarding a company’s economy, industry, peers and trading conditions can all affect demand and therefore its share price. In fact, stocks in a given industry often perform similarly, as they react to the same headlines.
The life of a big company is rarely smooth, and there are a number of important events that affect the price of their shares. These can include:
- Mergers between companies or the acquisition of one company by another
- Directors’ dealings – when directors buy or sell their own shares in the company
- Rights issues – when companies issue more shares to the market to raise money
- Share buy-backs – when a company starts buying up its own shares
- Special dividends – a dividend paid out by companies when they are feeling particularly cash-rich
- Share splits – when a company splits shares into smaller ones (often because they are becoming too expensive)
Test your knowledge
- A $75 million
- B $7.5 million
- C $750 million