Stock Market Basics

Stock Market Basics

Many people have heard of the stock market before and to a certain degree understand what it is. However, most people do not have a clue when it comes to actually utilizing it to make some money. Education is one of your greatest tools when it comes to the stock market. Having an understanding of the basic concepts of the stock market is your first stepping stone to making a lot of money. In this article, we will look at some of the basics.

How Stocks Trade

The New York Stock Exchange (or the NYSE) is one of the largest and most recognized stock markets in the world. It is the largest one in the United States. Whenever you see images of people with their hands on their heads, looking completely devastated, at a large electronic board with abbreviated company names beside numbers with upward and downward facing arrows, you’re most likely looking at the NYSE. The NYSE holds some of the biggest companies in the United States stocks. The majority of the trading at the NYSE is done face-to-face. At the NYSE stocks are bought and sold much like items would be at an auction. Brokerages are the individuals involved in the buying and selling of stocks.

The Nasdaq is known as an over-the-counter market. It is the second largest stock market in the United States. With the Nasdaq all the buying and selling of stocks is done online, or using telecommunications. A lot of computer hardware and software companies do all the trading on Nasdaq. Some of the biggest companies in the United States sell their stocks on the Nasdaq. With Nasdaq, brokerages are responsible for maintaining the bid and ask prices of the stocks, making sure to keep them up-to-date and within the prescribed percentage range.

The American Stock Exchange is the third largest stock market in the United States. The AMEX deals solely with companies that have small market capitalization. This means companies with a low stock price and a small amount of shares. The Nasdaq owns the American Stock Exchange.

Changes In Stock Prices

Stock prices change due to supply and demand. If a company’s stocks are bought more than they are sold then their stock prices will rise. If more people are selling the company’s stocks than they are buying then the company’s stock price will drop. It can seem somewhat arbitrary and senseless sometimes as far as what makes people buy certain stocks and sell others. Many people talk about “good news” and “bad news” coming from companies being the main motivation behind either buying or selling their stocks. Generally however, a company’s earnings is what dictates whether or not someone will buy their stocks and therefore, increase their stock prices.

Stock market graph.

Purchasing Stocks

When purchasing stocks you can use a brokerage. They are the middleman between you and a company’s stocks. There are 2 types of brokerages: full-service and discount. The first manages your stock accounts and offers professional advice on what stocks to buy and which stocks to sell. The second simply purchases or sells the stocks that you want. They are cheaper and many would argue the best way to go about buying or selling stocks as one of the best ways to participate in the stock market is by educating yourself and not letting someone else make choices for you.

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