The Stock Exchange

A detailed account of the stock exchange exceeds the scope of the present book, so the author means to cover the basics.

Stock refers to shares of ownership in a commercial undertaking, granting the bearer the right to receive a share of the profits and to participate in some manner in the election of the board of directors who hire senior management and give direction to the company. The value of stock is the receipt of dividends (cash payments representing a share of profits) as well as the value of the share itself.

Stock is an asset, which may be traded freely among individuals. The London Stock Exchange is a house in which this trading customarily takes place among its members, but "outside brokers" can trade with members, or through them, or among themselves. The existing house merely provides a customary and standardized venue and procedures for the trading of shares.

There's a mention of trading in the house between brokers (who make money off commissions for the individuals on whose behalf he buys and sells stock) and jobbers (who make money by naming a buying and selling price for a security and profiting by the difference). In general, brokers seek to make an exchange with other brokers, turning to the jobber only when no broker will offer him a better deal. The author mentioned that stocks were priced in shares that would be offered for 100 pounds. (EN: Since the writing of this book, the price of stocks has changed to pounds per share.)

Perhaps the greatest benefit of trading in the exchange is security: the house guarantees that the shares traded by its members are authentic, and serves as a central registry of the ownership of shares, enabling stocks to be traded without the need for paper certificates.

While the exchange was initiated for the trading of stock, other securities are also traded, most notably bonds (debt-backed securities) that may be sold at a discount, or which may pay interest periodically. There are registered bonds (the company has a registry of ownership) as well as bearer bonds (the company does not know who owns the bond and will pay anyone who presents the certificate).

Sykes goes into some detail about logistics - how deals are made, contracts drawn and signed, and ownership registered as it is passed from hand to hand. (EN: This is interesting in a historical perspective, but much of it is done electronically now and the process is not particularly interesting.)

There's also a bit of trivia about the various strategies of investors: those who hold stock long-term, others who trade it regularly to benefit from fluctuations in the price, etc. There's talk of bulls of bears, but also of stags, pigs, kangaroos, wildcats, and others who have routine patterns of behavior as they seek to make money from the rise and fall of prices. (EN: Which is again overly detailed and trivial.)