Stocks and shares - Ch. 17

Selling stocks for the first time is called an IPO or initial public offering in the US

and a flotation or an IPO in Britain.

A period during which most stocks are rising is called a bull market,

and one in which most of them fall in value is a bear market.

Offering these stocks for sale to financial institutions and the general public changes the business

from a private to a public company, and is called going public.

Stock prices rise and fall depending on supply and demand,

i.e. how many sellers and buyers there are.

Companies use an investment bank to find buyers, and to underwrite the stock issue,

i.e. to guarantee to buy the stocks if there are not enough other buyers.

Stocks and shares are also known as equity or equities; the most common form

is called common stock in US and ordinary shares in Britain.

Companies either distribute part of their profits to shareholders as an annual dividend,

or keep the profits in the company, which also causes the value of the stocks to rise.

Consequently the nominal value of a share - the price written on it - is rarely the same as its market price -

the price is currently being traded at on the stock exchange.

After shares have been issued they can be traded on the secondary market at

the stock exchange on which the company is listed or quoted.

Successful companies can issue stocks or shares

to raise capital to expand their operations.

Some stock exchanges have automatic computerized trading systems that match up buyers and sellers; other have market makers -

traders in stocks who quote bid (buying) and offer (selling) prices.

Stock markets are measured by stock indexes (indices),

which show changes in the average prices of a selected group of important stocks.