Today's topic is submitted by one of you guys. Do continue with asking me to explain such terms that I have used in my posts without thinking of people with 0 financial knowledge. I will write a post on it if the question has a large-enough scope for me to write a post.
So, what is the Stock Market/ Stock Market Index? Or even, what is the Stock Exchange? Do note that they are very different things. Allow me to start with the easy one first:
What is the Stock Market?
We have often heard the news tell us that "The stock market crashed today/ it rallied today". In those cases, the word "stock market" actually refers to an overview of all the public-traded companies in that country.
Hence, it is kinda contextual. If you receive the news from CNN, and they are referring to the stock market, they would be referring to the US stock market.
What is the Stock Market Index?
Here are some examples of Stock Market Indexes - S&P 500, Dow Jones Industrial Index. STI. These indexes serve as a measurement of that component of the stock market (Large-capped, small-capped). Just like how S&P 500 allows us to measure the Large-Cap segment of the stock market. There is a total stock market index that measures the entire US stock market. ETFs are then funds that follow these indexes.
What is the Stock Exchange?
It is a secondary market where financial instruments (Such as stocks, bonds, derivatives, currencies, and commodities) are traded between sellers and buyers (An exchange's job is to match the sellers to the buyers and vice versa).
New stocks can also be listed on the exchange through an IPO and gain access to more capital from investors. A lot of exchanges will also require a certain standard of the company before allowing them to be listed on their exchange.
Here are some examples of famous stock exchanges around the world:
1. New York Stock Exchange (NYSE) - US$23 Trillion in the listed market cap
2. National Association of Securities Dealers Automated Quotation (NASDAQ) - US$11 Trillion
3. London Stock Exchange (LSE) - US$4 Trillion
4. Hong Kong Exchanges and Clearing - US$4 Trillion (Usually for access to the Chinese market, or you can use the next one as well)
5. Shanghai Stock Exchange - US$4 Trillion
All these exchanges can have their own indexes to measure their own stock market (LSE has the FTSE 100, which measures the 100 biggest companies listed on their exchange). These exchanges also form to be a network whereby large sums of money are moved on a daily basis.
Nowadays, if you wish to buy/sell stocks, you do not need to call anyone on the stock exchange. You can buy using some platforms that will help you do the transaction. Furthermore, we can look at stock prices whenever we feel like nowadays due to the advent of our smartphones Hence, these conveniences will allow for better efficiency in investing.
With that,
I end today's topic.
Stay vested, Stay frugal my friends,
Dionysius
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