The stock market is the place where stocks are issued and traded, including the issuing market and the circulating market. By issuing stocks to the public, the companies can quickly accumulate a large amount of capital to achieve the scale of production, while investors can provide capital to these companies by purchasing the stocks so as to get a good return if the stock price increases.
1. Function of circulating market
The circulating market includes all the activities in the process of stock circulation. The existence and development of the circulating market creates a favorable financing environment for stock issuers. Investors can buy and sell stocks at any time according to their own investment plans and market changes. As the investors’ worries of illiquidity are relieved, they can safely participate in the subscription activities of the stock issuance market, which is conducive to the long-term financing of the company, and the smooth circulation of stocks also plays a positive role in promoting the stock issuance. For investors, through the activities of the stock circulation market, long-term investment can be made short, and the stock and cash can be converted to each other at any time, which enhances the liquidity and security of the stock. The price in the stock circulation market is a barometer reflecting the economic trend, it can be sensitive to the supply and demand of funds, the supply and demand of the market, the changes of the industry prospect and the political situation, and therefore is one of the most important indicators for prediction and analysis. For enterprises, the transfer of equity and the fluctuation of stock market are indicators of their operating conditions, which can provide the companies with a lot of helpful information for decision-making and improvement of management. It can be seen that the circulating market plays an important role.
2. Composition of circulating market
The main participants of circulating market mainly include:
(1) The stockholder (seller);
(2) The investor (buyer);
(3) An intermediary, such as an investment bank or a stock exchange, that provides conditions for the circulation and transfer of stocks.
3. Stock trading methods
The method and form of buying and selling stocks is called trading methods, which is the basic link of stock circulation and trading. There are many kinds of trading methods in the modern stock circulation market, which can be divided into the following three types from different perspectives:
(1) Bargaining and bidding
According to the difference between the price determined by the buyer and the seller, it can be divided into bargaining and bidding. Bargaining is a kind of one-to-one negotiation between the buyer and the seller. It’s a common way of trading over the counter. Generally, it is used when the stock is not marketable, the trading volume is small, the transaction needs to be kept secret or the buyer or the seller wants to save the commission.
Bidding refers to the process where a group of sellers and buyers competes openly, each of which are composed of several people. That is, there is not only a competition of bidding and asking price between the buyers and sellers, but also competition within the buyer group and the seller group. Finally, a transaction is concluded between the highest bidder and the lowest bidder. In this kind of process, the buyer is free to choose the seller, and the seller is free to choose the buyer, which makes the transaction fair and the price reasonable. Bidding is the main way to buy and sell stocks in stock exchange.
(2) Direct and indirect transactions
According to the different ways of transaction, it can be divided into direct transaction and indirect transaction. Direct transaction is a direct negotiation between the buyer and the seller. The stock is also settled and delivered by the buyer and the seller themselves. In the whole transaction process, there is no intermediary involved. The vast majority of OTC transactions are direct transactions. Indirect trading is a trading method in which the buyer and the seller do not directly meet and contact each other, but entrust an intermediary to buy and sell stocks. The brokerage system in the stock exchange is a typical indirect transaction.
(3) Spot trading and Futures trading
According to different delivery periods, it can be divided into spot trading and futures trading. Spot transaction refers to the transaction mode that the settlement and clearing procedures shall be handled immediately after the transaction, and the money and stocks shall be cleared on the spot. Futures transaction refers to the transaction mode that the settlement and clearing shall be carried out after a certain period of time according to the price and quantity specified in the contract after the transaction.
Resource from : https://xueqiu.com/edu/invest-edu/education/begin/1894299685/83681160