Stock market in terms. Guide Part 1

   Main and most known types of securities are: stocks, bonds, futures, options. Stocks and bonds are primary financial instruments, and futures and options are derivative ones.

Stock: a holder of stocks is a company co-owner; he has a right to receive part of company’s earnings as a dividend and participates in a company management by voting on stockholders’ meeting. A company that issued stocks is named a company-issuer.

Bond: a holder of bonds credits a company for the certain date. Upon expiration of the due date he will get money invested in bonds’ purchase and accrued interest back. Percents can be paid gradually during all date or upon its completion. Bonds give the guaranteed profit and, thus, are the less risky investment, than stocks, but at the same time not so profitable.

Futures: a holder of futures is obligated to buy or sell stocks, currency, oil or other values at a predetermined date and price, stipulated in advance at the moment of contract conclusion.

Option: differs from the futures in that gives the right to buy or sell stocks, currency, oil or other values at the predetermined date and price, stipulated in advance by the contract.
Trading in futures and options is related to the high risk and can result both in the large profits and in the large losses.

   Types of stocks

Stocks can be classified in different ways:

1. By rights of the stockholder.
- So, the holder of common stock can participate in the general meeting of stockholders with the voting right on all questions under his competence; has a right to receive dividends, and at company liquidation - to receive part of the property in the cost rate of stocks that belonged him.

- The holder of preferred stock does not have voting rights. Instead of that a certain stable profit on securities is guaranteed him, and also original right to payment of part of property owing in case of company liquidation.
This stock characteristics is interesting rather to investors, than to active players-traders. The costs of common and preferred stocks of one company behave alike, except for the period of dividends payment.

2. By stocks’ liquidity and volatility.
- Liquidity index of stocks reflects the ability of stockholder to convert them quickly into money and get a sum, not less, than spent at a purchase, taking into account received dividends.

- Volatility index reflects the deviation of security return from its average value and, the same, dynamics of price during the accounting period.

High liquidity reduces the risk of investments in a security, volatility, vice versa, increases the risk and possible profit. Stocks volatility can change quite often, therefore it is necessary to reexamine regularly the contents of the portfolio.
Liquidity stocks include all most popular on the market stocks, mainly the so-called stocks of the first echelon.

3. Third classification is named "by investor’s expectations" de bene esse.
- Blue Chip Stocks are stocks of large, stable and respected companies, already well-established by good indices of profitableness; high liquidity. Term "blue chip" came from poker, where blue chip has the highest value. As a rule, dividends on these stocks are not paid.

- Growth stocks are stocks the growth of which is expected in future. These, as a rule, are stocks of the well-known companies or companies, working in perspective at the moment industry. The stocks of Internet -companies in the 90th and biotechnological companies can be an example.

- Income stocks are stocks on which, as a rule, good dividends are paid.

- Cyclic stocks are stocks the cost of which directly depends on the state of economy on the whole. They can slump at the economic decline and rise quickly during the economic recovery. They, in particular, include stocks of motorcar factories, airlines.

- Protection stocks are stocks of those branches of industry that are less influenced by the economic situation in a country. For example, stocks of food companies and enterprises, producing goods of prime necessity.

- Stocks of small capitalization companies are stocks of young, but perspective companies. For example, many enterprises of technological sector. Such stocks have high growth potential, but operations with them have high degree of risk. They are very volatile.

- Speculative stocks are volatile stocks of unstable companies, long ago present on the market.

- Undervalued stocks are stocks, which ratio of profit, dividends and sales/capitalization and other generally accepted fundamental characteristics say about substantial growth potential.

- Seasonal stocks are stocks of companies the profits of which depend on a season. So, trading companies get considerable part of profit in the period of seasonal sales and in holiday periods.

   Stock exchange

Trade in stocks is carried out on stock exchanges (markets). Stock exchange can have a certain location, and can exist only in the electronic form. So, NYSE (the New York Stock Exchange) is located in Manhattan, and NASDAQ (the National Association of Securities Dealers Automated Quotations) exists only in the electronic form.

Other well-known exchanges of America are AMEX (the American Stock Exchange), CHX (the Chicago Stock Exchange).

Market participants: issuer - registrar - depositary - stock exchange - broker - investor

Stock market basis are issuers and investors:

- Issuers are enterprises, different types of companies, bank institutions etc. that issue certain types of securities;
- Investors are companies or individual entities that acquire these securities.

Between issuer and investor there are the following market participants:
- Registrar is an executive officer that maintains a register of joint-stock associations. If the number of stockholders becomes more than 500, an issuer, in accordance with legislation, should conclude a contract with an independent registrar and pass the register maintenance to him;
- Depositary is a professional participant of stock market. He registers ownership rights on securities. Depositaries work by agreement with an investor and client, unlike a registrar who cooperates with an issuer;
- Stock exchange is an organizer of trade on the stock market;

- Broker is a professional participant of stock market. If a broker and client concluded an agency contract, a broker acts on behalf and for account of a client. If the relations of broker and client are confirmed as an agency contract, a broker acts on his behalf, but for account of a client.