RedWine
12-07-2007, 03:34 AM
Stock typically take the form of shares of common stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called "convertible preferred shares" (or "convertible preference shares" in the United Kingdom).
Although there is a great deal of commonality between the stocks of different companies, each new equity issue can have legal clauses attached to it that make it dynamically different from the more general cases. Some shares of common stock may be issued without the typical voting rights be included, for instance. Or some shares may have special rights unique to them and issued only to certain parties. These case by case variations in the specific form of stock issuance is beyond the scope of this article, except to note that not all equity shares are the same.
A stock derivative is any financial claim which has a value that is dependent on the price of the underlying stock. Futures and options are the main types of derivatives on stocks. The underlying security may be a stock index or an individual firm's stock, e.g. single-stock futures.
Stock futures are contracts where the buyer, or long, takes on the obligation to buy on the contract maturity date, and the seller, or short takes on the obligation to sell. Stock index futures are generally not delivered in the usual manner, but by cash settlement.
A stock option is a class of option. Specifically, a call option is the right (not obligation) to buy stock in the future at a fixed price and a put option is the right (not obligation) to sell stock in the future at a fixed price. Thus, the value of a stock option changes in reaction to the underlying stock of which it is a derivative. The most popular method of valuing stock options is the Black Scholes model . Apart from call options granted to employees, most stock options are transferable.
During Roman times, the empire contracted out many of its services to private groups called publicani. Shares in publicani were called "socii" (for large cooperatives) and "particulae" which were analogous to today's Over-The-Counter shares of small companies. Though the records available for this time are incomplete, Edward Chancellor states in his book Devil Take the Hindmost that there is some evidence that a speculation in these shares became increasingly widespread and that perhaps the first ever speculative bubble in "stocks" occurred.
The first company to issue shares of stock after the Middle Ages was the Dutch East India Company in 1606. The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could be undertaken only by governments or by very wealthy individuals or families.
Economic Historians find the Dutch stock market of the 1600s particularly interesting: there is clear documentation of the use of stock futures, stock options, short selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695, and a change in fashion that unfolded and reverted in time with the market (in this case it was headdresses instead of hemlines). Dr. Edward Stringham also noted that the uses of practices such as short selling continued to occur during this time despite the government passing laws against it. This is unusual because it shows individual parties fulfilling contracts that were not legally enforceable and where the parties involved could incur a loss. Stringham argues that this shows that contracts can be created and enforced without state sanction or, in this case, in spite of laws to the contrary.
stock exchange is an organization that provides a marketplace for either physical or virtual trading shares, bonds and warrants and other financial products where investors (represented by stock brokers) may buy and sell shares of a wide range of companies. A company will usually list its shares by meeting and maintaining the listing requirements of a particular stock exchange and the different. In the United States, through the inter-market quotation system, stocks listed on one exchange can also be bought or sold on several other exchanges, including relatively new so-called ECNs (Electronic Communication Networks like Archipelago or Instinet).
Stocks used to be broadly grouped into NYSE-listed and NASDAQ-listed stocks. Until a few years ago there was a law in the USA that NYSE listed stocks were not allowed to be listed on the NASDAQ or vice versa.
Many large foreign companies choose to list on a U.S. exchange as well as an exchange in their home country in order to broaden their investor base. These companies have then to ship a certain amount of shares to a bank to the US (a certain percentage of their principal) and put it in the safe of the bank.Then the bank where they deposited the shares can issue a certain amount of so-called American Depositary Shares, short ADS (singular).If someone buys now a certain amount of ADSs the bank where the shares are deposited issues an ADR American Depository Receipt (ADR) for the buyer of the ADSs.
Likewise, many large U.S. companies list themselves at foreign exchanges to raise capital abroad.
Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.
As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, discount or full service, handles the transaction.
After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.
Although there is a great deal of commonality between the stocks of different companies, each new equity issue can have legal clauses attached to it that make it dynamically different from the more general cases. Some shares of common stock may be issued without the typical voting rights be included, for instance. Or some shares may have special rights unique to them and issued only to certain parties. These case by case variations in the specific form of stock issuance is beyond the scope of this article, except to note that not all equity shares are the same.
A stock derivative is any financial claim which has a value that is dependent on the price of the underlying stock. Futures and options are the main types of derivatives on stocks. The underlying security may be a stock index or an individual firm's stock, e.g. single-stock futures.
Stock futures are contracts where the buyer, or long, takes on the obligation to buy on the contract maturity date, and the seller, or short takes on the obligation to sell. Stock index futures are generally not delivered in the usual manner, but by cash settlement.
A stock option is a class of option. Specifically, a call option is the right (not obligation) to buy stock in the future at a fixed price and a put option is the right (not obligation) to sell stock in the future at a fixed price. Thus, the value of a stock option changes in reaction to the underlying stock of which it is a derivative. The most popular method of valuing stock options is the Black Scholes model . Apart from call options granted to employees, most stock options are transferable.
During Roman times, the empire contracted out many of its services to private groups called publicani. Shares in publicani were called "socii" (for large cooperatives) and "particulae" which were analogous to today's Over-The-Counter shares of small companies. Though the records available for this time are incomplete, Edward Chancellor states in his book Devil Take the Hindmost that there is some evidence that a speculation in these shares became increasingly widespread and that perhaps the first ever speculative bubble in "stocks" occurred.
The first company to issue shares of stock after the Middle Ages was the Dutch East India Company in 1606. The innovation of joint ownership made a great deal of Europe's economic growth possible following the Middle Ages. The technique of pooling capital to finance the building of ships, for example, made the Netherlands a maritime superpower. Before adoption of the joint-stock corporation, an expensive venture such as the building of a merchant ship could be undertaken only by governments or by very wealthy individuals or families.
Economic Historians find the Dutch stock market of the 1600s particularly interesting: there is clear documentation of the use of stock futures, stock options, short selling, the use of credit to purchase shares, a speculative bubble that crashed in 1695, and a change in fashion that unfolded and reverted in time with the market (in this case it was headdresses instead of hemlines). Dr. Edward Stringham also noted that the uses of practices such as short selling continued to occur during this time despite the government passing laws against it. This is unusual because it shows individual parties fulfilling contracts that were not legally enforceable and where the parties involved could incur a loss. Stringham argues that this shows that contracts can be created and enforced without state sanction or, in this case, in spite of laws to the contrary.
stock exchange is an organization that provides a marketplace for either physical or virtual trading shares, bonds and warrants and other financial products where investors (represented by stock brokers) may buy and sell shares of a wide range of companies. A company will usually list its shares by meeting and maintaining the listing requirements of a particular stock exchange and the different. In the United States, through the inter-market quotation system, stocks listed on one exchange can also be bought or sold on several other exchanges, including relatively new so-called ECNs (Electronic Communication Networks like Archipelago or Instinet).
Stocks used to be broadly grouped into NYSE-listed and NASDAQ-listed stocks. Until a few years ago there was a law in the USA that NYSE listed stocks were not allowed to be listed on the NASDAQ or vice versa.
Many large foreign companies choose to list on a U.S. exchange as well as an exchange in their home country in order to broaden their investor base. These companies have then to ship a certain amount of shares to a bank to the US (a certain percentage of their principal) and put it in the safe of the bank.Then the bank where they deposited the shares can issue a certain amount of so-called American Depositary Shares, short ADS (singular).If someone buys now a certain amount of ADSs the bank where the shares are deposited issues an ADR American Depository Receipt (ADR) for the buyer of the ADSs.
Likewise, many large U.S. companies list themselves at foreign exchanges to raise capital abroad.
Selling stock is procedurally similar to buying stock. Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.
As with buying a stock, there is a transaction fee for the broker's efforts in arranging the transfer of stock from a seller to a buyer. This fee can be high or low depending on which type of brokerage, discount or full service, handles the transaction.
After the transaction has been made, the seller is then entitled to all of the money. An important part of selling is keeping track of the earnings. Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.