Stock Market

A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only trading privately, such as shares of private companies, for investors through equity crowdfunding platforms. Investment in the stock market is most often via stock brokerages and electronic trading platforms. Investment is usually made with an investment strategy in mind.

Stocks can be categorized by the country where the company is domiciled. For example, Nestlé and Novartis are domiciled in Switzerland and traded on the SIX Swiss Exchange, so they may be considered as part of the Swiss stock market, although the stocks may also be traded on exchanges in other countries, for example, as American depositary receipts (ADRs) on U.S. stock markets.

Size of the stock market

The total market capitalization of equity-backed securities worldwide rose from US$2.5 trillion in 1980 to US$83.53 trillion at the end of 2019. As of December 31, 2019, the total market capitalization of all stocks worldwide was approximately US$70.75 trillion.

As of 2016, there are 60 stock exchanges in the world. Of these, there are 16 exchanges with a market capitalization of $1 trillion or more. Then, they account for 87% of global market capitalization. Apart from the Australian Securities Exchange, these 16 exchanges are all in either North America, Europe, or Asia.

By country, the largest stock markets as of January 2020 are in the United States of America (about 54.5%), then Japan (about 7.7%) and the United Kingdom (about 5.1%).

Raising Capital

A startup can raise such capital either by selling shares (equity financing) or borrowing money (debt financing). Debt financing can be a problem for a startup because it may have few assets to pledge for a loan. Moreover, especially in sectors such as technology or biotechnology, where a firm has few tangible assets. Plus the interest on the loan would impose a financial burden in the early days, when the company may have no revenues or earnings.

Equity financing, therefore, is the preferred route for most startups that need capital. The entrepreneur initially sources funds from personal savings, friends or family, to get the business off the ground. As the business expands and capital requirements become substantial, the entrepreneur may turn to angel investors and venture capital firms.

Listing Shares

When a company establishes itself, it may need access to larger amounts of capital than it can get from ongoing operations or a traditional bank loan. It can do so by selling shares to the public through an initial public offering (IPO). The IPO also offers early investors in the company an opportunity to cash out part of their stake. Often reaping very handsome rewards in the process.