Stocks and Stock Markets

Key Takeaways

  • Companies go public to raise capital to finance growth by selling equity shares in the public markets.
  • A primary market transaction happens between the original issuer and buyer.
  • Secondary market transactions are between all subsequent sellers and buyers.
  • The secondary market lowers risk and transaction costs by increasing liquidity.
  • Shares are authorized and issued and then become outstanding or publicly available.

  • Equity securities may be common or preferred stock, differing by

    • the assignment of voting rights,
    • dividend obligations,
    • claims in case of bankruptcy,
    • risk.
  • Common stocks have less predictable income, whereas most preferred stocks have fixed-rate cumulative dividends.
  • ADRs represent foreign shares traded in U.S. markets, lowering risks, such as currency risks, and transaction costs for U.S. investors.