How Does the Stock Market Work?

Within the educational section of the "Capital Market Support Program," read a post on the topic "Stock Exchange." 

A stock is a security that represents equity ownership in a company. This financial instrument allows the bearer to receive dividends in proportion to the number of shares owned.

There are two main types of stock: common and preferred. The fundamental contrast between the two is the right to vote.

  • In the case of common stock, the owner receives a dividend based on the company's dividend policy. It should be noted that the company has no obligation to distribute dividends to ordinary shareholders. However, the earnings might be distributed in full or in part at the discretion of the corporation. An investor who owns common stock has the right to vote. This entails attending a shareholders' meeting and making choices about the company's management. The number of votes is determined by the number of shares owned.
  • Fixed dividends are paid on preferred shares. In the ownership of preferred stock, the investor has neither the right to vote nor the right to participate in decisions relating to the management of the company.

Stocks are purchased by investors for a variety of reasons, including: 

  • If the price of the stock rises, the value of their capital may increase.
  • When the corporation divides its earnings, the investors will get a dividend.
  • Investors will be able to vote and influence the firm.

Companies issue stock in order to raise capital. As an example,

  • To cover an existing liability.
  • To introduce new products.
  • to expand into new markets or regions.

The  Capital Market Support Program is funded by the European Union and is implemented by the EBRD’s Capital & Financial Markets Development team. The program is led by EBRD’s lead contractor, Galt & Taggart, together with BDO Georgia.