|Take care when you trade. Not all
markets are created equal.
Stock markets are:
....organisations set up to bring together the buyers and sellers
of stocks. They may be very large and sophisticated (like the London
Stock Exchange - LSE - or the New York Stock Exchange - NYSE). Or
very small and crude (like a group of traders meeting on a regular
street corner in the financial centre of a developing economy).
The ability to buy and sell stocks and shares almost instantly does
not occur by magic, but because there is a market set up to do it.
Markets are a business like any other - the London
Stock Exchange (LSE) is a quoted company (full name: London Stock
Exchange Group plc). Like any business it needs high volume (so
it encourages lots of trading) and trust in the product (so it provides
regulation to prevent abuse).
Markets have rules
Every market has its own rules of business. The sophisticated markets
have rules to encourage fair trading, prevent manipulation and provide
a level playing field of information flow. The less sophisticated
markets do not.
Each market decides what stocks can be traded. So
just because you have shares does not necessarily mean you can find
a market to trade them.
Shares/stocks as a generic class are often called
'equities'. But stock markets have expanded into trading other stuff
(like bonds). So the particular bits of stock markets that trade
equities are called 'Equity Markets'.
The London Stock Exchange
Unless you are a very sophisticated investor all the share you buy
will be on the LSE. The LSE comprises a number of markets, the most
important one being the Main Market. The list of securities traded
on the Main Market is called the Official List. If a company is
on this list it is said to be 'listed'.
The LSE also runs the Alternative Investment Market
(AIM) and other smaller markets in derivatives and other securities.
Each of these markets has its own rules of business
and is subject to regulation through the Financial
Services Authority. These rules and regulations will determine
both the rules of the game (what trading and communication practices
are allowed and what are not) and the allowed behaviour of companies
that are listed. Companies can be de-listed, either at their own
request or by edict of the LSE. If a company in which you invest
is de-listed you will have to find a buyer for yourself.
Lessons for the simple investor:
- Only buy shares listed on the Main Market.
The reason for this is that the Main Market is more tightly regulated
than the others, and you have better protection.
- Be aware that even market professionals can
use the terms 'Stock Exchange' and 'stock market' loosely. Even
the word 'listed', which has a precise meaning, can be misused.
Don't assume that they are necessarily referring to the Main Market.
- Sometimes shares are transferred from the
Main Market to AIM. No need to panic, AIM is a perfectly respectable
market, but you should perhaps consider selling at a suitable
- If shares you own are de-listed you can no longer
sell them. (Well, you can try writing to the company Secretary
to see if he can help). This is a disaster for you. But take some
comfort from the fact that shares that de-list without buying
out the private shareholders are usually bust anyway. you win
some, you lose some.