Essentially, stock financing options are financing stocks for importers and exporters. It is a part of a global business where buyers and sellers come to a particular place to purchase stocks of manufactured goods.
It is different from the stock market business which is primarily a trading market, where buyers and sellers trade on specific stocks. Trading happens in an exchange center such as in the New York Stock Exchange, where brokers deal with both buyers and sellers.
Trade Finance Global describes stock finance as a process where financiers or lenders purchase stock of finished raw materials or goods from a seller on behalf of the buyer. Stock finance provides the working capital to enable the purchase of a stock of products that would be exported to the buyer.
Stock financing in the stock market is when an individual wants to invest in stock market trading and needs to add more cash required by the trading market by engaging a financing company in seeking a loan for the investment project. This venture is riskier than in the stock financing option for the purchase of goods to be sold to a ready buyer market.
The amount of money one can place as an investment in stock market trading will determine the type of broker or financial adviser one will need to guide the investor in succeeding in the business. If one is an investor with a significant amount of investment portfolio, the investor will need an established financial institution to provide him with a financial plan. If the risks are “good,” the financial institution may bankroll a part of the investment. This financing move is one option.
However, when an investor goes into the purchase of manufactured goods intended for sale to a buyer or market, he may avail of a limited period revolving facility where cash can be accessed whenever needed within 30 to 90 days. This option is not strictly a stock financing option but is technically known as invoice finance.
Stock finance facilitates business transactions in cross-border and domestic trade using available financing tools such as import bills for collection, letters of credit, shipping guarantees, pre-shipment export, and invoice factoring and discounting.
Unlike in the stock market trading, stock financing could be used to purchase commodities, cars, electronic products, furniture, watches, wood, and other “hard products.” Stock finance works when a buyer decides to buy goods from an exporter or supplier. The buyer opens a credit line with a lender, and the lender pays the supplier as the latter sends the products to the buyer.
In stock trading, an investor watches out for Initial Public Offerings where large companies open their stocks to the public. If well guided by a broker-dealer, the investor can purchase an IPO just before the price skyrockets. Banks engaged in assisting investors in putting their money in an IPO like Stanley Morgan usually charge investors a fee for their services. Savvy investors in the stock market have developed a strong sense of awareness of what’s happening in the business every second, minute and hour of the day.
These two essential types of stock finance options are designed to assist businesspeople in making their ventures successful.
