Buying and selling shares

After newly issued shares have been sold (usually by investment banks) for the first time – this is called the primary market – they can be repeatedly traded at the stock exchange on which the company is listed, on what is called the secondary market.

Major stock exchanges, such as New York and London, have a lot of requirements about publishing financial information for shareholders. Most companies use over-the-counter (OTC) markets, such as NASDAQ in New York and the Alternative Investment Market (AIM) in London, which have fewer regulations.

The nominal value of a share – the price written on it – is rarely the same as its market price – the price it is currently being traded at on the stock exchange. This can change every minute during trading hours, because it depends on supply and demand – how many sellers and buyers there are. Some stock exchanges have computerized automatic trading systems that match up buyers and sellers. Other markets have market makers: traders in stocks who quote bid (buying) and offer (selling) prices. The spread or difference between these prices is their profit or mark-up. Most customers place their buying and selling orders with a stockbroker: someone who trades with the market makers.

1. Stocks that have already been bought at least once are traded on the primary market.

2. NASDAQ and the AIM have more regulations than the New York Stock Exchange and the London Stock Exchange.

3. The market price of stocks depends on how many buyers and sellers there are.

4. Automatic trading systems do not require market makers.

5. Market makers make a profit from the difference between their bid and offer prices.