An annual or perennial, growing to 80 cm/30 in, native to Europe and Asia; slightly woody stems; leaves greyish; flowers in spikes, purple, red or white, cross-shaped, often double in cultivars. It includes garden stock or gilliflower (Matthiola incana) and night-scented stock (Matthiola bicornis). (Genus: Matthiola, 55 species. Family: Cruciferae.)
A person or organization which holds share of stocks is called a shareholder. The term "share" still means the stock issued by a corporation, however.
Type of stock
There are several types of stock:
Common stock
Common stock, also referred to as common shares or ordinary shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. Shareholders of common stock have voting rights in corporate decision matters.
Preferred stock
Preferred stock, sometimes called preference shares, have priority over common stock in the distribution of dividends and assets.
Dual class stock
Dual class stock is shares issued for a single company with varying classes indicating different rights on voting and dividend payments.
Treasury stock
Treasury stock is shares that have been bought back from the public. Treasury Stock is considered issued, but not outstanding.
Stock Derivatives
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.
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.
Apart from call options granted to employees, most stock options are transferable.
History
The first company to issue shares of stock was the Dutch East India Company, in 1602.
Shareholder
A shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. Companies listed at the stock market strive to enhance shareholder value.
Stockholders are granted special privileges depending on the class of stock, including the right to vote (usually one vote per share owned) on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, stockholder's rights to a company's assets are subordinate to the rights of the company's creditors. This means that stockholders typically receive nothing if a company is liquidated after bankruptcy (if the company had had enough to pay its creditors, it would not have entered bankruptcy), although a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured.
Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.
The largest shareholders (in terms of percentages of companies owned) are often mutual funds, and especially passively managed exchange-traded funds.
Application
The owners of a company may want additional capital to invest in new projects within the company.
By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends.
In the common case of a publicly traded corporation, where there may be thousands of shareholders, it is impractical to have all of them making the daily decisions required to run a company.
In a typical case, each share constitutes one vote (except in a co-operative society where every member gets one vote regardless of the number of shares he holds).
Shareholder rights
Although ownership of 51% of shares does result in 51% ownership of a company, it does not give the shareholder the right to use a company's building, equipment, materials, or other property.
In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. It would be naive to think that any management would forego management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs." [Whitman, 2004, 5]
Even though the board of directors runs the company, the shareholder has some impact on the company's policy, as the shareholders elect the board of directors. Board candidates are usually nominated by insiders or by the board of the directors themselves, and a considerable amount of stock is held and voted by insiders.
Means of financing
Financing a company through the sale of stock in a company is known as equity financing.
Trading
A stock exchange is an organization that provides a marketplace (either physical or virtual) for trading shares, where investors (represented by stock brokers) may buy and sell shares in a wide range of companies. A given company will usually list its shares by meeting and maintaining the listing requirements of a particular stock exchange. 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 internet-only exchanges. Stocks are broadly grouped into NYSE-listed and NASDAQ-listed stocks and exchanges where NYSE-listed stocks may be bought are generally not the same group as the exchanges where NASDAQ-listed stocks may be bought.
Large U.S. companies also list in foreign exchanges for the same reason. Although it makes sense for some companies to raise capital by offering stock on more than one exchange, in today's era of electronic trading, there is limited opportunity for private investors to make profit on pricing discrepancies between one stock exchange and another.
Buying
There are various methods of buying and financing stocks. The most common means is through a stock broker. Whether they are a full service or discount broker, they arrange the transfer of stock from a seller to a buyer. Most trades are actually done through brokers listed with a stock exchange, such as the New York Stock Exchange.
There are many different stock brokers from which to choose, such as full service brokers or discount brokers.
There are other ways of buying stock besides through a broker. If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments. However, the initial share of stock in the company will have to be obtained through a regular stock broker. Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself. A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.
When it comes to financing a purchase of stocks there are two ways: purchasing stock with money that is currently in the buyers ownership, or by buying stock on margin. Buying stock on margin means buying stock with money borrowed against the stocks in the same account. otherwise, the stockbroker has the right to sell the stock (collateral) to repay the borrowed money. He can sell if the share price drops below the margin requirement, at least 50% of the value of the stocks in the account.
Selling
Selling stock is procedurally similar to buying stock.
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. 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.
Stock price fluctuation
The price of a stock fluctuates fundamentally due to the law of supply and demand. Like all commodities in the market, the price of a stock is directly proportional to the demand.
Technology's influence on trading
Stock trading has evolved tremendously. Even though the origins of stock trading go back to the 13th century, the market as we know it today did not catch on strongly until the late 1800s. Technology has allowed the stock market to grow tremendously, and society has encouraged the growth. In contrast to the past where only those who could afford expensive stockbrokers, anyone who wishes to be active in the stock market can now do so at a very low cost per transaction.
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