Is this a classroom or a stock exchange?

While our earlier posts focussed on the ways of raising money (capital) through stocks, this post focusses on the place where it happens – The stock exchange. Remember the good old school days, when the teacher angrily asked the class - “Is this a Class room or a fish market?” to indicate that the noise in the class resembles that of a fish market. She could have very well asked the question “Is this a classroom or a stock exchange?” One of the few differences between a fish market and a stock exchange is the “item” that is traded. Fish gets traded in a fish market while Stocks get traded in a Stock market. Just as different fishes get traded in different parts of the market, different stocks are traded in different places of the market. The trader who wants to sell his shares goes to the that part of the floor in the exchange and cries out the shares that he wants to sell. This system is known as the “outcry system”. ( They just have to have a technical term for everything, havent they.. :) )

Thanks to the advancement in computers and networks, this system is slowly being replaced by virtual networks where stocks are bought and sold electronically. The NASDAQ ( National Association of Securities Dealers Automated Quotation System) – An american stock market is an example of this virtual stock exchange. Now, a stock exchange is initally formed by a group of stock brokers ( or sometimes the government forms such markets like the NSE for instance). There can be any number of stock exchanges in a country. You even have a Pune Stock Exchange ( http://www.punestockexchange.com/). But as with all ventures and enterprises, only few of them are really popular and make it to the top. Now, a company can list on more than one stock exchange ( just as Infosys is listed on both NSE and NASDAQ). This means that the company can raise capital at both places. This also means that the profit will have to shared among the shareholders at both places.

If all the stock exchanges are trading in stocks, then what does the “Sensex crosses 20,000 points” mean?How are the points determined? These and more in the forthcoming blogs. :)