Trade Shares

Before understanding what is trading in shares, it is necessary to understand what is a share. Share represents the investment of an individual in a business. This investment entitles the individual (investor) to some dividends, profits, rights, bonuses, remaining amount, if any, from winding up proceeds, etc. Starting a business with own investments may not be as profitable as doing it on larger scale. For this, collective investment becomes necessary, and in order to avoid future disputes, clearly defining entitlement is essential. This is, of course, fundamental concept, and there is Corporation Act, that governs such joint stock corporations ensuring equitable treatment for every investor.

The Articles of Incorporation of any for profit corporation clearly mention Authorized Share Capital. This is the number of shares the corporation proposes to divide the project on date into. But most of these funds are not required immediately. As and when, the corporation requires funds it issues the share capital, inviting people to subscribe for its shares. Obviously, the corporation would restrict itself to issued capital, or an amount nominally above that. Subscribed share capital may even be less than the issued capital, if the corporation does not receive adequate subscriptions. The offer is kept open for a few days and it is called initial public offer. Once, the period of offer is over, shares are allocated to the applicants/subscribers, and the applicant may be asked to pay up the balance monies, if any. While subscribing, the applicant may be asked to pay only part of the money, or at times fully pay up. Once the share is fully paid up it is referred to as paid up share. But some may want to get out as they may see a better investment opportunity, or even need the funds that they were able to spare earlier for such investment. This is where trading in shares comes into picture.

There are stock exchanges in all the countries, facilitating trading in shares. Here people desirous of selling shares wait for somebody to bid for their share at a value that they consider reasonable for their share. Likewise, there are buyers willing to purchase shares. This ensures liquidity of the shares. Here too, there is a monitoring authority that does not let unscrupulous people get away easily. To enable investors sell their shares on stock exchanges, the corporation has to list itself with the stock exchange, and comply with the conditions imposed by both the stock exchange and the governing authority. As per the terms and conditions of these bodies, corporation has to disclose any material contracts that can increase or reduce profits, so that the investor can take informed decision, whether to buy or sell or hold the shares. There are transaction charges for sale, as well as purchase of shares. Trading online is also possible courtesy, the Internet. Online trading is equivalent to trading actually at the stock exchange premises, as everything related to such trading has already been computerized. However, it is not possible to link so many accounts directly to the server of the stock exchange. Therefore, we have some depository participants, with whom we can have a dematerialized account. This dematerialized account has electronic information about the number of shares held by the investor at any point of time. Of course, the investor is expected to have dematerialized all the physical shares in his or her possession and the same are represented in that account. As and when sales are done, this account is debited, and when shares are bought this account is credited not with money, but with the number of shares of that particular for profit corporation. Shares may be bought and sold on the same day, or they may be held for a longer period. When they are bought on the same day, it is called intra day trading, and when shares are bought on one day and sold a few days or months later it is known as inter day trading. Shares of corporations not listed on stock exchanges are traded only amongst known people, and therefore, they may not fetch as much price as shares of listed corporations. This is because, more people would be willing to buy shares of a particular corporation on stock markets, and since the supply is short, the demand and supply rules apply. If, however, the shares of a corporation are listed on a stock exchange, but there is no demand for them, then even they cannot be sold easily, and their price continues to slip till somebody finds them worthwhile at that price.

With this background about corporation shares, it will be easier to appreciate the difference between world trade share, and share trade. Though the words share and trade is present in both sets of words, there is nothing common. One relates to corporations, and business enterprises, governed by internal laws, and the other is about share out of the market out there in the world. World Trade Share is determined by factors such as trade polices, exports, imports, balance of payments, duties, tariffs, and international agreements, etc., rather than simple demand for goods, and services of an individual corporation. Therefore, World Trade Share would be a macro level share. It can`t be traded for sure. World Trade Share can decrease or increase depending upon what is being sold, and demand for it across the globe. Internet can be used to sell or trade the goods in other parts of the world. But the resultant figures would be represented collectively - at macro levels, instead of any individual enterprise`s imports or exports when talking about World Trade Share. An equivalent of this collective representation of shares of a corporation on stock markets would be market capitalization, which means how much of the capital/monies moving into the stock market has moved towards the shares of that particular corporation, instead of mentioning how many shares were sold at which price.

The last decade or so has seen considerable growth in technology. This has also lead to novel and faster ways of developing new drugs, and drug candidates, apart from improving health care procedures. Technology is now found in every area of our lives, and this is expected to continue for a long time in future, as people come out with more and more of wishful thinking, and technology makes them feasible. At micro levels, the shares of corporations dealing in technologies have witnessed tremendous demand, and consequently there has been considerable capital appreciation in the share prices of these corporations. At macro level, technology related trades out of the total world trade now form a respectable component, which was not so two decades ago. However, technology is not as essential as food, clothing, medicines, and shelter. Therefore, every time there is a credit squeeze around the world, technology becomes one of the first few victims, and its share in the world market decreases at such times. This cascades down to the micro levels as well. Therefore, shares of technology based corporations witness a drop in their prices. Another risk factor associated with technology shares is that there can be new discoveries making the existing technology redundant overnight. This is the reason, portfolio should be reviewed periodically to check whether technology shares are indeed giving the kind of returns as expected of them, and if not, is it time to exit.

The possibilities that technologies, especially computer software and hardware, have opened have made science gallop in recent times, and more and more discoveries are on way. New branches of science that were only speculated on have emerged. More and more discoveries such as stem cells, cloning, genetic medication, etc., are now being discussed, and contemplated. They are also made possible by the technology, especially predictive capabilities of technologies. Earlier, people had to experiment on animals, and wait for the results. Now, the sequence is often obtainable through programs, so that much of time is saved and it is easier to identify which drug candidate is worth pursuing and which one needs to be abandoned at the outset. Because of these advantages, the shares of pharmaceutical corporations, and health care corporations have also become attractive in recent times and since resources will be utilized more efficiently and effectively because of these predictive technologies, chances of discovering new drugs have increased tremendously. Formerly, research would take ages, and people would not expect these companies to announce any major breakthroughs. It is no longer so. Even the chances of any drug company coming out with a drug that has to be recalled, or any instrumentation that has to be withdrawn from market have come down because of technologies. New and improved procedures for health care are now in place, making them affordable, and therefore, giving greater market share to these companies. The market was always there, but due to the costs involved, people were not able to access these health care medications and procedures. Now, this market will be able to afford treatments, and the research and health care corporations will be able to show the required profit.