What are stocks?
Amazon, HSBC, Rolls Royce, BP, Microsoft – examples of famous companies whose stocks are traded on stock exchanges around the world.
But what is a stock?
A stock is simply a unit of ownership in a company. If you own a stock, or a share, then you own a part of that company.
For example, if a company issues 10,000 shares and you buy 100, then you own 1% of that company. If the company performs well, then the stock price will rise. If it performs badly, then the stock price will fall.
Can I trade stock in any company?
No. You can only trade publicly available stocks in companies that have floated on the stock market. When this happens, it is known as an initial public offering (IPO) and the company is regarded as a ‘public company'.
A major reason why companies decide to go public is to generate massive investment. This is because when you buy a stock, the company receives that money in exchange for your ownership in it.
For example, when Facebook (now Meta) went public, it made a historic $16 billion.*
*Forbes, It's Official! Facebook Raises $16 Billion in Historic IPO
Public vs private companies
However, despite the lure of major investment, many large companies choose to remain private.
Private companies are not listed on stock exchanges. However, they can still offer shares privately, e.g., to its employees and select investors.
The advantages of remaining private are:
- The risk of an IPO – a lot of time, effort and cost goes into an IPO and there’s always the danger that the shares might not sell
- Lower reporting standards – in America, the US Securities and Exchange Commission (SEC) demands that public companies produce annual reports and are independently audited
- Loss of control – private companies don’t answer to shareholders and can keep their business plans under wraps
Examples of big private companies include Deloitte, Subway, Huawei, Aldi, and Bosch.
Where are stocks traded?
Stocks are traded on stock exchanges. The role of an exchange is to provide a safe and regulated environment where stocks can be traded, and to ensure that companies listed on the exchange meet strict corporate governance standards.
Stock Exchange opening times
Stock exchanges are not open 24/7. They have opening and closing times. Keep in mind the different time zones because you can’t trade a stock if the exchange is closed.
New York Stock Exchange (NYSE)
Open Mon-Fri, 9.30am – 4pm (EST)
Founded in 1792, the NYSE is the largest stock exchange by market capitalization in the world – greater than the NASDAQ, London Stock Exchange, and Tokyo Stock Exchange combined.*
Notable companies listed on the exchange are Alibaba, Johnson & Johnson, and Wal-Mart.
Open Mon-Fri, 9.30am – 4pm (EST)
Located in New York, the NASDAQ (National Association of Securities Dealers Automated Quotations) is the second biggest exchange in the world.
It is a tech-focused exchange and includes such giants as Apple, Amazon, Intel, Cisco, and Microsoft.
London Stock Exchange (LSE)
Open Mon-Fri, 8am – 4.40pm (GMT)
First founded in 1698 as the Royal Exchange, the London Stock Exchange is the largest exchange in Europe.
Listed companies include Unilever, BP, GlaxoSmithKline, HSBC, and Royal Dutch Shell.
Tokyo Stock Exchange
Open 9am – 11.30am then 12.30pm – 3.00pm (JST)
Founded in 1878, the Tokyo Stock Exchange is the largest in Asia. Listed companies on the exchange include Sony, Toyota, and SoftBank.
*Statistica, Largest stock exchange operators, listed by market cap of listed companies 2020