Stocks and Bonds Basics

Stocks are all the stocks in which ownership of a company is divided in equal shares. In American English, the stocks are collectively called as “stock”. Each share of this stock represents fractional ownership in proportion to its number of outstanding shares. As each individual shareholder gains dividends from the corporation’s holdings, such shareholders are entitled to receive dividends. The dividend rate is also decided by the laws of corporation; however, it is usually a rate that is less than the rate of return on the invested funds.


In America, most companies have their own stock exchanges where shareholders can trade or buy and sell the stocks of their choice. The American company listed above has its own individual stock exchange, called the New York Stock Exchange or NYSE, whereas the British company listed above has its own private sales trading market. Private sales trading of stocks in the United Kingdom is called Pink Sheets. However, both the American and the British systems work on the same principle. Their stocks are traded on the pink sheets only.

Stocks are sold or bought in the open market through brokers who make the sale in exchange for a commission. The major purpose of stock broker is to purchase or sell new stocks and then distribute the proceeds to the investors. However, in some countries, a limited number of brokers operate exclusively through stock exchanges. There are a few countries where stock exchange has no role in the purchase or sale of stocks by the investors. The stock exchange is an intermediary between the buyers and sellers of stocks and hence, it facilitates transactions faster and efficiently.

Stocks are divided into two categories-the private stocks and the public stocks. The private stocks are not accessible to the general public, whereas the public stocks are traded publicly. Most of the institutional investors like banks, insurance companies, brokerage firms etc. trade in the stocks.

The Stocks and Bonds are the most liquid form of investments today. These are the assets which are easily traded in the market and there is a good demand for these stocks and bonds. However, most of these assets come with restrictions in terms of transferability to other entities. These include stocks and bonds, corporate bonds, treasury bonds, commercial bonds, municipal bonds, credit default swaps, foreign bonds, mortgage backed securities, swap contracts and reverse mortgage.

Over-the-counter means that they can be traded without needing to go through the trade desk of a particular brokerage firm. Over-the-counter trades are usually done through electronic channels like the internet. It is not necessary that you have to go through the broker when dealing with OTC stocks and bonds. You can discuss over-the-counter options with your financial advisor. This will help you to know the pros and cons of an investment in a company’s stock market. Always remember that before venturing yourself into the world of stock market investment, make sure that you have sufficient knowledge and experience.

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