Tuesday, October 01, 2002

Stock Markets #1

Quite a few people tell me they have no clue what a stock market is, what it does, how or why the money flows through it, what is its role in the economy etc. These type of questions prop up especially when there is a scam or some one mentions that Mr.Xyz became pauper because he gambled on the stock market. Sometimes stock brokers are considered nothing but gamblers who try to make a quick buck. Partly true, mostly false and over the next couple of posts I will try and explain the false part of it because the true part needs no explanation. I know that not many people read my blog but if ever someone asks me these type of questions again... I will ask him / her to go see my blog ;-)

Type 'stock market' in Google and you will get more than 3.6 million page hits. Wow...thats a lot! [Type 'maltesh' and you get 631 pages... thats a lot too :p ]. So what is a stock market? Actually in today's world, the more appropriate word would be 'share market' because stocks have gone out of fashion. In earlier days only a certain amount of total shares could be traded between people (hence that particular 'stock' of shares). But nowadays almost all the shares of all the public companies are available for trading.

Why the need for stock markets?: People have a tendency to save hard earned money for rainy days. This money could be put to better use if it is pumped back into the economy. How do you entice a middle-class family to give that money to some bio-tech firm or dot-com company to go burn it? Without exaggerating let me tell you that without an active stock market any economy will come to a standstill. In London alone, in these difficult times, the daily amount of shares bought / sold is worth £10 billion (or Indian rupees 7,500 crores). Bombay registers about 1,500 crores every day. In good times, this figure triples - and this is just one stock market!

Where does this type of money come from, where does it go, who is in charge of it... ??? More of this in my next post. I don't want to drill your heads in one go ;-)


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