Stock Exchange Definition

Stock Exchange

Stock Exchange is a marketplace where shares/ stocks, bonds and other similar financial instruments are traded. The advent of stock exchanges and listing of companies’ shares on the exchanges brought immense liquidity for the investors. Before coming into existence of stock exchanges investors were stuck with the shares and bonds, as it was very difficult for them to find and reach out to suitable buyers.

The world’s first stock exchange is supposed to be ‘The Amsterdam Stock Exchange’ established in 1602 by the Ditch East India Company, though this disputed by some (source: Wikipedia).

Engraving depicting the Amsterdam Stock Exchange, built by Hendrik de Keyser c. 1612. Artist  Claes Jansz. Visscher, Source: Wikipedia 

In India, during the manual trading days, many regional stock exchanges used to flourish, namely:

1. Bombay Stock Exchange (BSE)
2. Delhi Stock Exchange (DSE)
3. Madras Stock Exchange (MSE)
4. The Calcutta Stock Exchange (CSE)

The National Stock Exchange (NSE) was established in 1992 which for the first time provided a modern, fully automated screen-based electronic trading system, BSE and other exchanges followed suit and today BSE and NSE are the most popular stock exchanges operating in India.

Stock Definition

Stock Definition

‘Companies’ and ‘Shares’ with limited liability were devised during the colonial period to mitigate high risk and uncertainty involved in the seafaring ventures. Shares enabled raising huge sums required to fund expeditions from many small investors and limited liability protected the investors from creditors accessing their personal properties in case of a failed venture. Thus a share is ownership of a company into a tiny unit or block.

With the advent of stock exchanges the shares got listed on the exchanges bringing a great amount of liquidity to shares.

Stock is a term used to describe shares in general while the word share is used in the context of a particular company. For example you own shares of NMDC Ltd. or SJVN Ltd. You also own stocks of a great number of Indian companies.

It is not uncommon, at least in India that the two terms stocks and shares are used interchangeably.

A Share of 'The Empire Jute Company Limited"

Passive Income Definition

Meaning and Definition

Passive Income is income that accrues to a person without carrying on of active vocation or profession or the expenditure of any physical or mental labor or time. Passive income is the antonym to ‘active income’, which requires carrying the person’s active engagement and exertion.

Passive income can accrue to a person from two sources:

1. Inheritance
2. Investments

For a majority of us, only sustained, prudent and significant investments can result in the creation of adequate passive income to liberate us from the drudgery of the necessity to work for a living, which is called ‘financial freedom’.

Examples:

Examples of passive incomes are:

• Rent
• Dividend
• Interest
• Royalty

Related Links:

Passive Incomes Empowers Pursuit of One's Dreams and Passions

How To Generate Passive Income?

Passive Incomes of Financially Free and Not Free Compare?

Low Lifestyle Costs and High Passive Income Lead to Financial Freedom

How to Attain Financial Freedom?

How The Passive Incomes of The Financially Free and The Rich Compare?

How Will My Lifestyle Affect My Children?

Margin Trading Definition

Meaning and Definition

Stock prices constantly fluctuate in the stock markets. A number of Speculators called day-traders try to make a living out profits from these minor price variations. Since the price differences within a day are small, profit from such variations is insignificant after adjusting brokerage and other transaction cost. Therefore the stockbrokers extend them a temporary loan, a few times the own investment (margin) of the trader, enabling the value of trade to be enhanced many times, thereby enhancing the profit into a meaningful sum.

Margin trading is a double-edged sword. As it has the potential to enhance a small profit many times, it equally magnifies a small loss many times more!

In fact the loss is not just restricted to the price difference but includes twice the broker's fees, both on sale and purchase.

Example:

Margin Trading Example