Tim LaCroix, age 10, of Sarasota, Fla., for his question:
WHAT IS THE STOCK MARKET?
Stock markets have been around for a long time. The first European stock exchange, as the market is more properly called, was started in Antwerp, Belgium, in 1531. There are two leading stock exchanges in the United States: the New York Stock Exchange and the American Stock Exchange. The New York City organization was started back in 1792. A stock exchange is a market where member agents can sell and buy stocks and bonds for American and foreign businesses.
In many ways a stock market works very much like a department store: A customer wants a certain number of shares of stock just as he may want a new suit. At the stock exchange, or market, he makes his purchase from a member who is called a stockbroker. A stockbroker receives a commission on each transaction he handles, just as a clerk in a department store might receive a commission for every suit he sells.
State and federal laws regulate how shares of stock can be issued, listed by stock exchanges and traded or sold. In Washington, D.C., the Securities and Exchange Commission (SEC) administers all of the federal laws.
A share of stock is a certificate of ownership in a corporation. Prices of stock change according to general business conditions and the earnings and future of the corporation. A person can buy one or more stock certificates to show how many shares in the corporation he holds. The stockholders actually own the company and elect a board of directors to manage it.
To be listed on the New York Stock Exchange, a corporation must have at least 2,000 shareholders who together hold at least 1 million shares, as well as a yearly earning power under competitive conditions of over $2.5 million before taxes.
If a corporation does not meet the requirements to be listed by one of the stock exchanges, shares can be sold through a method called over the counter trading.
If you wanted to buy a share of stock, you would place an order with an agent in a brokerage house. The broker will get a price by telephone or telegraph and relay the order to his firm's representative on the floor of a stock exchange. The representative will negotiate the sale which takes only a few minutes. Your purchase is instantaneously recorded on tape and sent by stock ticker to brokerage firms over a nationwide network.
It costs a lot of money for a stockbroker to purchase a membership in an exchange. Only a limited number of membership is available.
Some exchange members become specialists and concentrate on a limited group of stocks. Others might become odd lot dealers who purchase and sell between one and 99 shares of stock at a time, rather than work in 100 lot units.