For all stock market investors, the share market is the one that appears to be the most popular, partly due to its simplicity of operation but also because of the numerous national and international assets upon which it is possible to speculate. Of course, the share market also benefits the shareholders who purchase the shares in order to make profits and receive dividends. Let us look closely at the definition and operation of this market in detail.
What is the share market?
The share markets are the markets where companies can issue shares in order to create financing. The investors who buy the shares thereby become shareholders of the company and receive any dividends due calculated from the profits made by the company in a proportional manner to the number of shares purchased.
The share market therefore enables the acquisition of assets from all the companies quoted on the stock markets of the different stock exchanges worldwide.
Organization of the stock market:
The stock market is divided in several kinds of markets:
- The first market, includes the largest companies listed on the stock market, which we can say, is a cash market. It is however possible to pay your assets monthly by subscribing to a SDR. To be listed in this group, the companies must fulfill some conditions such as offering at least 25% of their capital to the public and publishing the accounts of the last three years. They must also make a turnover of more than 75 million euros.
- The second market includes middle sized companies which are still very important companies. In order to be part of this group, the companies have to offer the public more than 10% of their capital and publish at least the accounts of the last two financial years.
- The new market concerns young companies whose potential is evaluated as interesting in the long term.
- The OTC (Over the Counter) market or literally “on the go” is ruled by the Euronext Paris market but it is not regulated. In order to be part of this market, a company only has to present the accounts from the last two years and their articles of association. It is a holder of securities or a shareholder who should make the request to be listed.
How does the stock market works?
The share market operates like most of the other financial markets by passing orders relating to the selling or buying of assets quoted. Other conditions can be indicated on these orders relating to the price conditions and validation limits.
Most often, these are the banking entities or companies specialised in investment that are responsible for gathering their clients’ orders and transmitting them to the quotation system digitally.
Orders executed on the stock market are displayed in a precise order. This can be in order of priority based on the ascending price or by the time in chronological order.
We distinguish between two types of quotation for stock market shares, these are:
- The Continuous Quotation (or the CAC for ‘cotation en continue’) which concerns the major values. In this case, the quote price is revised directly in real time.
- The fixed price relating to the smaller rates: In this case, the quotation of a share is made twice a day.
Trading on the share market means that you either have to go through bank placement products or register with an online trading platform in order to speculate on these asset prices through the Forex.
The different types of stocks on the market and their specificities:
There are different types of shares on the stock market. Here are the main shares and their specific characteristics:
- Common shares: also called “capital shares”, they are issued by a company at the time of its creation, as part of a contribution in cash, when a company has an increase of capital also in the context of a contribution in cash and during a distribution of free shares.
- Shares with warrants: These shares offer an advantage to their holder. In fact, they allow you to subscribe later to other shares with financial advantages.
- Priority dividend shares (Non-voting); These shares were inaugurated in 1988 and generally have a larger dividend than the other types of shares. However, their part in the total number of shares that constitutes the social capital of a company cannot exceed 25%.
- Shares with double voting rights: As its name implies, these shares offer two votes per share instead of one.
On the online markets, you can trade ordinary shares or capital shares.
Initial public offering:
When a company is quoted on the stock market for the first time, it is difficult to calculate a traditional quotation as the performance of the asset is at that time unknown. It is however still calculated.
In fact, the initial public offering of a stock market asset is somewhat different in that it corresponds to a calculation based on the price that the buyers are prepared to pay and the price that the seller determines. Further details on this calculation will be explained later in this article.
Different types of quotations:
It is important to understand that not all shares are quoted in the same way. In fact, we can distinguish two major types of quotations, live quotes and fixed quotes.
Live quotation is the most common system used and concerns the majority of assets found on the market, particularly those relating to large companies that are listed. Fixed quotes are only generally used for less liquid assets. Companies offering shares with fixed quotes are therefore mostly smaller companies with a lower exchange volume.
Although a live quote is, as indicated by its name, made in real time and therefore changes throughout the trading sessions, the fixed quotations are calculated and updated only once or twice per day.
The calculation made for quoting a share:
The calculation necessary for the quotation of a share is simple in principle yet complex concerning its application on the market scale. Here we will explain as simply as possible how the price of a share is evaluated on the stock markets.
To put it simply, let us say that the price of a share is determined through supply and demand. On the stock market, asset sellers quote a minimum price for selling their shares together with the number of shares they are offering. The buyers however indicate the number of shares they wish to buy, and the maximum price offered. The price used will be that which enables the sale of the most shares taking into account the buyers and sellers.
What are the market orders that you can place on the stock market?
Buy and sell orders are placed daily on the stock market. These orders may have a time limitation and depending on the order they are either to be bought "at any price" or at a "set price" with a minimum selling price or a maximum buying price.
These market orders are made by investors or issuers and executed by market members. It is a complex computer software that executes the transactions. The workstations present at the negotiators are in fact connected to Euronext computers or to other international stock markets.