How Does a Stock Market Work in a Company?
Companies become publicly traded--that is, they list their shares on the stock market for the public to buy and sell--as a means to raise capital. Public trading is how companies grow and how investors are able to take part ownership in a corporation.
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Types
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In the U.S., companies list their shares on two primary exchanges: the New York Stock Exchange (NYSE) and the Nasdaq. Nasdaq is entirely automated, which means company shares are traded electronically. Shares traded on the NYSE are handled both electronically and by live trading specialists who work on the floor of the exchange.
Procedure
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Prior to listing shares on an exchange and in an initial public offering (IPO), companies must register with the U.S. Securities and Exchange Commission (SEC) by filing an S-1 form. This filing is made publicly available on the SEC's website and provides investors with a preliminary glimpse into the company's financial condition and details into the forthcoming IPO.
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Fees
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Companies are subject to initial listing and annual fees for selling shares on either the NYSE or Nasdaq. Fees associated with the NYSE tend to be higher than those at Nasdaq, according to Forbes.com. It is possible for companies to be listed both on the NYSE and the Nasdaq in what is known as a dual listing.
Features
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Once a company completes an IPO, it still may need to raise substantial capital for organic growth or expansion through mergers and acquisitions. One way to accomplish this is to issue new shares to the public in what is known as a secondary or follow-on offering. All of the components to the offering, including the number of shares, the price range of those shares, and the time period in which they will be available, are predetermined.
Fun Fact
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There are some traditions connected with stock performance in the financial markets. During the holiday season, stocks tend to soar, and this is largely attributed to the "feel-good" atmosphere surrounding people at this time of the year. This is referred to as a "Santa Claus Rally."
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- Photo Credit Image by Flickr.com, courtesy of David Ohmer
