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Stock Market

Stock Market

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Stock Market

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  1. Stock Market CIE3M0 – The Individual & the Economy

  2. Bringing Buyers & Sellers Together • Market is a place where buyers and sellers come together for purchase of exchange • i.e. sporting goods market, compact disc market, video game console market. • Stock Market is part of the capital market ($) that brings buyers and sellers together

  3. Location • Have always had a physical location – Trading Floor • Technology and the Internet eliminated need for physical location of a market • April 23, 1997 – Toronto Stock Exchange (TSX) became largest stock exchange in North America to choose a floorless, electronic environment by closing its 'physical' trading floor • All trading takes place over computers

  4. Location • The Toronto Stock Exchange

  5. What is Being Exchanged • Business requires financing to buy assets that are needed for operation • Few individuals have enough money to finance expansion, buildings, or are willing to assume the entire risk • Ownership therefore, divided into shares (stocks)

  6. What is Being Exchanged • A specific number of shares sold at a fixed price to raise the amount of money needed • Any profits earned are distributed in dividends back to the shareholder • First sale of shares by a company to the public is called Primary Distribution or an Initial Public Offering (IPO) • Occurs only once in primary market • No further exchanges, between company and shareholder unless company decides to issue more shares at later date.

  7. IPO • Company wishes to raise $900 • Company offers 9 shares at $100 per share • Market capitalization has occured 1 Share 2 Shares 6 Shares

  8. Secondary Market • Shareholders who wish to sell their shares and company is listed on an exchange, go to stock market to find a new buyer for their shares • Buyer may pay more or less than the purchase price depending on supply and demand

  9. Secondary Market • Almost all activity is in the secondary market • Trading in the secondary market does not affect original company

  10. Secondary Market • Price • Agreed-upon value for the transaction • Bid • Highest price a buyer is willing to pay for a stock (demand) • Ask • Lowest price a seller is willing to accept for his/her stock (supply) • Trade • When buyers and sellers agree on price

  11. Secondary Market • When demand for stock exceeds number of shares available at a particular price, price of stock increases. Price ($) Quantity

  12. Secondary Market • When demand for stock is less than number of shares available at a particular price, price of stock decreases. Price ($) Quantity

  13. Making the Trade • Investors who are fairly knowledgeable and comfortable with making own decisions may choose discount brokers • Charges less commission, but does not offer investment advice • Full Service Broker charges more commission, but provides investment advice, analyst reports, and research on companies

  14. Placing an Order • When ready to place order, you must answer the following: • What stock do you want to purchase? • How many shares? • What price are you willing to pay? • What type of order do you want to place? • Day order - expires at end of the day • At-The-MarketOrder - specifies number of shares to be bought or sold at best price then available • Limit Order - specifies maximum price for buying and minimum price for selling

  15. Step 1 • Order is placed with a broker at a TSX participating organization by phone, Internet, or in person Buyer Seller

  16. Step 2 • Orders are matched electronically by the Exchange computer system.

  17. Step 3 • When a match is found, the broker informs the client of the trade price plus the commission. BUY SELL Bid $102 $100 $99 Ask $102 $103 $104 Deal is Made

  18. Role of Transfer Agent • Company whose stock you purchased appoints a trust company (transfer agent) to keep track of shareholders • Who and where they live? • Important for sending out dividend payments and informing eligible shareholders of annual meetings and their right to vote