The Stock Market
You can only buy shares in public limited companies (PLCs) on the stock market. Each index comprises a collection of companies. In the UK the best-known is the Footsie - the FTSE 100 index. This reflects the average performance of the biggest 100 stock market-listed companies in the UK.
In many ways, the stock market is similar to your local market place. It brings together people wanting to sell and people wanting to buy products at the best possible prices. However with the Stock Market we have one big difference, the transaction is undertaken by a middleman (a stock broker) through a dealing screen so we do not have direct dealings with the stock market itself.
The Stock Broker
A stock broker is professional who is both qualified and regulated to buy and sell shares and other securities through market Makers in behalf of investors. Shares are sections of companies that a broker can buy and sell. To become a stock broker one must pass exams to gain the qualification, in the USA the exam is called the general securities representative examination or the series 7 exam, in the UK it is called the Securities and Investment Institute, and this is achieved by passing two exams. Once these are passed an individual is a stock broker.
A transaction on a stock exchange has to be made between two members of the exchange which must be done through a broker. The main types of stock broking Service are execution only which means a broker will on buy or sell as per the client’s wishes, the next is advisory dealing which is where the broker will advise the client which shares to buy, but it’s the client decision as to what the final decision. The final type is discretionary dealing which is where the broker makes all the dealing decisions on the client’s behalf.
In 1790, the first stock exchange was founded in Philadelphia, USA, where it remained until 1820’s when it moved to Wall Street, New York where it remains and is synonymous with the stock market. Sometimes stock brokers will trade on their own behalf (as a principal) using their knowledge to buy and sell on the stock market, these stock brokers refer to themselves as dealers, stock traders, or traders. When a stock broker works for a business or individual as an agent they charge a flat fee, and commission for undertaking the trade. But when working as a principal with a client the broker will charge a mark-up or mark-down on the current market. It is the same in the UK, except that when the broker works as a principal the broker informs the client and does not charge commission...