Investing for Everyone: The Stock Market Explained

The first known stock certificate was issued in 1606 in Holland. It was for shares in a company that traded spices and other goods from India. Like modern stock, it represented a share of ownership in a company. Today, there is an average of 1.46 billion stock shares traded per day, worth approximately 46.1 billion dollars; each of them still representing a small ownership in a large company.

The Basics of the Stock Market

There are three primary exchanges in the United States:

The NYSE: The New York Stock Exchange. Located in a building at 40 Wall Street in New York City, this is the original American Exchange. It started in the 1700s on the corner of Wall and Broad Streets. This informal market started out as a group of people meeting on an open street corner. In 1792 the Buttonwood agreement was signed, bringing to life the New York Stock and Securities Board which later became the NYSE. In 1817, it moved into a small rented room which has later become the modern stock exchange building. To trade, an investor would be required to purchase a seat on the exchange. If an investor did not have a seat on the exchange, someone who did would trade for the investor. Thus, the stockbroker was born.

The AMEX: The American Stock Exchange. The exchange started in 1842 as the New York Curb exchange and was later renamed. Its meetings took place outside the NYSE. It remained on the street until 1921, when it moved into offices on Trinity place in New York City.

The NASDAQ:The National Association of Securities Dealers Automated Quotations. This market began in 1971 and, for its time, was revolutionary. It was the first market based on the principles of the NYSE that did not occupy a specific geographic location. The NASDAQ was and is entirely computer run. The stocks traded on the NASDAQ are called “OTC” which means “over the counter”. They do not have to be registered to be traded and no one is required to have a seat on the exchange in order to trade in this market.

Stocks: Stock is what is bought and sold on all of these exchanges. An investor buys a share of stock and that share represents ownership of the company. If an investor buys a share of stock worth $1 from a company worth $100, the investor now owns 1% of that company. Stocks are also referred to as equity because an investor now has equity in a company.

Market Order: This is the most basic way to buy and sell stock. An investor wants to buy a particular stock at a particular price. This investor places a market order, saying that s/he will buy this stock. When a seller is available at the specified price, the investor’s order is filled. S/he will know own, for example, 20 shares of Citibank at $4.00 per share for a total of $80. When the price goes up, the original buyer will sell and the difference between the price s/he bought the stock at and the price s/he sold it at will be the profit. If s/he sells Citibank at $4.50 per share for a total of $90, s/he has made a profit of $10. Of course there will be taxes and broker’s fee subtracted from the total profit, but those will fluctuate based on a number of factors. Of course, if those shares of Citibank go down to $3.50 a share for example, the investor will either have to wait until they rise again or sell at a loss.

There are other ways to buy and sell stock but a market order is the most basic way.

Stockbroker: This is the person who handles the actual transaction for the investor.

Broker/Dealer: This is a company that both buys and sells stocks for investors and for themselves,

How to Invest in the Stock Market

There are many online services that are well known and reputable that will help an investor. They will have 24 hour customer support, tutorials and simple explanations of long legal documents. Some of the popular ones are E-Trade, Ameritrade, ING Direct, Charles Schwab and Fidelity. There are plenty of others too, so an investor can choose the one that suits him/her best based on a variety of needs. These online services will also provide a way to monitor investments on a daily basis and can advise on what market research is indicating about the current market conditions. These online services will also explain which stocks are traded on which markets and how they can be purchased.

For most of the above mentioned firms, there is no minimum to open an account and many of the accounts pay interest on funds that are not invested.

As with all investments, the key is that any investor is as educated as possible about all of the risks and rewards of investing. People have made fortunes investing in the stock market but just have many have lost fortunes. Every investor must make his or her own choices with the best information available to him or her.


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