The Great Stock Market Cash Cow?

The stock market is the great cash cow of finance. But how does it work? At a very basic description the stock market is simply a worldwide market place for financial products. A market being a place where buyers and sellers come together to trade money for goods and services. But the goods and services traded in the stock market are purely finance ones. Money is given in market for company stocks and derivatives of company stocks and securitized lines of credit instead of the fruit and vegetables in a traditional physical market.

There is only a complex series of answers to the question; ‘how does the stock market work’? And those answers differ according to the perspective of the person asking the question. There are four questioner groups when it comes to the economics of the stock market;

1. The companies that issue the stocks.
2. The buyers and shareholders who hold the stocks.
3. The brokers and the stock market traders who work the finance coal face as it were.
4. The stock market company that owns and operates the actual marketplace and electronic support systems.

The stock market works for the companies whose stocks are quoted on it as a cash cow. These companies put up for sale stocks (certificates of ownership) so that they can raise finance for capital investment such as warehouses or new railroad tracks. Once the stocks are marketed and sold, they become finance products in their own right and will be traded and speculated with numerous times. Even though ownership of the stocks may change hands many times, the originating companies are required to communicate with each and every stockholder. The stockholders will receive payout annually which will depend on the ‘earnings per share’ declared from the profits of the company.

The annual dividend payouts to stock market investors have to be good enough to entice buyers to buy in competition with other forms of investment. These are the basic economics of the stock market.

The stock market works for the buyers of stocks also as a cash cow. They take profits on their investment finance through dividend payouts and the (hopefully) rising value of their stocks. This occurs as long as the quoted companies are running a good business and making themselves attractive to stock market investors.

The economics of the stock market goes like this; the supply of stocks for each company in the stock market is restricted and so the price of a stock rises when this is the case (fixed supply) and the demand increases because the business is doing well.

The stock market works for the brokerage houses as guess what? Yes you of course a cash cow. They take fees from their clients every time they buy or offload stocks from their portfolios. They also take consultancy and advisory fees for guiding clients to the best stock market transactions. They also act as repositories for the actual stock certificates, mostly on computer accounts nowadays but also in quaint vaults.

The stock market works for the stock market company that occupies and manages the physical marketplace trading floors and electronic support systems as a cash cow. No surprise there then. The New York Stock Exchange NYSE is the largest in the World and is owned by ‘Euronext’ and as a corporation they are quoted on the stock market as well.