You might have frequently listened or read the word “stock”, “stock investment” and “stock market” in business news bulletins. In case you are a layman with little knowledge of the entire phenomenon, it would surely strike the mind in a due course. Let’s come to know what actually stock known is. A stock or share is a claim on the company’s asset. A public limited company issues the shares possessing some monetary value for fund raising purpose. Stocks are floated to the general public as an investment alternative to get return in form of dividend (annual or interim profit that the company announces) or capital gain (profit for shareholder that he earns on the difference between his buying price and selling price). There are many types of stocks distinguishable on the basis of their characteristics i.e., common stocks, preferred stocks, callable common stocks, callable preferred stocks, hybrid stocks and convertible stocks etc.
Shares are floated through Initial Public Offerings (IPOs) for first time sale to general public. Company contacts some financial institutions and allocates the contract of IPO to anyone of those after mutual agreement on terms and conditions. After the first time issuance, shares are further traded in the stock markets where the transaction of shares takes place. There are two pertinent types of stock markets. First is the organized stock exchange (shares of only stock exchange listed companies are traded here) and the other is known as Over The Counter (OTC) market (shares of each and every company may be traded here). Usually investors prefer to trade in organized stock exchanges because shares traded here are backed by the authorization statutory authority. Only those firms are listed here which fulfill the legislative requirements e.g., debt to equity ratio, return on investment, and operative and financial position of the company compared to the prescribed threshold.