The stock market – or the equity market – is a forum for trading shares of companies that are publicly owned. These shares can be bought either over the counter (OTC) or through organized stock exchanges, or Bourses (from the Dutch word for “pocket”). This enables investors to maintain or increase the value of their assets without the risk of creating their own enterprise, on one hand, and companies to mobilize funds and increase a company’s net value.
The stock market is divided into two sections – primary and secondary.
The primary market is where securities are created, where shares of a company are offered for the first time by the company (issuer) to the public. It is largely dominated by large liquidity suppliers, such as banks and major funds, and they – in turn – underwrite the IPOs; they actually approach prospective clients and retain a percentage of the sale as a fee.
Secondary markets are venues under the supervision of the stock exchange and national securities regulator where existing shares are thereafter traded between investors and speculators. Venues not under such supervision are considered Over-the-Counter (OTC) or off-exchange. This is a decentralized market, often comprising the buyer and seller alone; and transactions can be performed directly or indirectly through telephones, emails or trading platforms that match offers and buyers.