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A Complete "How To" Guide for
investing in Stocks, Bonds and Mutual Funds
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You are here:
Investing >
Stock Market Basics > About Stock Market Basics
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| Stock Market Information
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What is a Stock Share?
Corporations issue official-looking sheets
of paper that represent ownership of the
company. These are called stock
certificates, and each certificate
represents a set number of shares.
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Why invest in the stock market?
When you buy stock in a corporation, you own
part of that company. This gives you a vote
at annual shareholder meetings, and a right
to a share of future profits.
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Why Sell Stock?
The reasons people sell their stock are more
complex. A person may just need the money.
He or she may have watched the price go up,
and have a hunch this is a good time to lock
in their profit and sell some or all their
shares.
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How are shares bought and sold on the
NASDAQ?
If an investor asked his or her broker to
buy shares in a company, the broker would
call a few dealers, known as market makers,
finding the best price for the customer.
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How are stocks traded on the New York Stock
Exchange?
Stocks that are bought and sold on the NYSE
and the American Stock Exchange (AMEX) use
an auction system.
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What are ECNs?
Mutual Funds do much of their trading among
themselves and with other institutional
investors directly through electronic
computer networks (ECNs), the largest being
Instinet.
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Supply and Demand
A stock's price movement, up and down until
the end of the trading day, is strictly a
result of supply and demand. The SUPPLY is
the number of shares offered for sale at
anyone one moment. The DEMAND is the number
of shares investors wish to buy at exactly
that same time.
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American Stock Exchanges
American stock exchanges by year of
inception.
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International Stock Exchange
International stock exchanges by location.
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What fuels demand for a stock?
Wall Street has said for years that the
market is efficient, and the price of a
stock represents everything that is known
about a company up to that moment. Wrong,
stock prices over-react to news, both good
and bad.
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More to Know About Stock Trading
Probably the first thing you must
understand, is that with any investment,
there is always some risk. Even your savings
account, insured by the United States
Government, has the very real risk of
inflation rising faster than the interest
the bank pays you.
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What is a Limit Order?
Most new investors place market orders, just
buying or selling at the moment's current
price. But you can place a limit order, in
which you name the price that triggers your
order to buy or sell.
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Market Capitalization
Cap is short for capitalization. As a stock
market term, the capitalization of a company
is found by multiplying the total number of
shares times the current share price.
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Preferred Stock
When I was about 13 and first heard about
“preferred Investors that buy preferred
stock are generally the conservative type,
who are looking for a steady dividend that
may be higher than they can achieve with
A-rated bonds.
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How to Buy Stock?
Buying stocks is not as simple as walking
into a stockbroker's office and buying
shares like you would a pair of shoes from a
store. You are required to open an account
with the brokerage, like opening an account
at a bank.
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How much money do you need to open a
brokerage account?
Although most traditional full-service
brokerage houses such as Merrill Lynch, Dean
Witter, and Paine-Webber, and giant
"discount" brokers such as Fidelity and
Charles Schwab require a $2,000 ($1,000 for
IRA's) opening balance, I have located 10
brokers who will establish your account with
no money - $0.00!
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Money Market Funds
Investments such as bank certificates of
deposit (CDs) which are insured by the
federal government, sound pretty good. You
agree to tie up your money for anywhere from
30 days to 5 years to earn a guaranteed rate
of interest.
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Margin Loans and Investment
If you have at least $5,000 in cash and
investments in your account, you can use
available margin to increase your profits.
But using margin doubles your risk!
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Corporation Executive Pay
If you think the CEO of the companies whose
stock you own are paid too much, and the
wasted money should be paid as dividends,
forget it (unless you happen to own millions
of shares).
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