When some people talk about the market, they are referring to only one market in the economy — the stock market. In this market, buyers and sellers come together to buy and sell stockThe capital raised by a corporation by issuing shares of ownership; a certificate documenting a proportional share in the corporation’s assets and profits. (Also known as an equity.) or shares in companies.
Many people in the economy invest their money in stocks either directly or through mutual fundFunds from many investors pooled together to establish a diversified portfolio of investments. Mutual funds raise money by selling shares of the fund to the public. Shareholders are free to sell their shares at any time. Many employees invest in mutual funds through their employers, by setting aside some of their wages to invest in one or more funds on a regular basis. s. The stock market is not one market, but a number of different stock markets or exchanges around the globe. The major ones in in the United States are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). Although the NYSE is an actual physical market located in New York City, the NASDAQ is a system of computers that are linked.
An Introduction to Stocks
This topic is a brief introduction to the stock market and to stock ownership as one investmentProperty or other possession acquired for future financial return or benefit; also a commitment of time (e.g., to education or training). option to consider. Buying stock in a company (e.g., Sony, Nike, Kelloggs, BMW, or Apple) means purchasing a share or part of that company. It involves risks, unlike putting money into insured accounts, but also offers rewards that can be much larger. Making an informed stock investment means becoming knowledgeable about specific companies as well as knowing one’s own financial goals and tolerance for risk.
Bear vs. Bull
Market trends are often characterized by a bear or a bull. A bear market represents a period of steep price decline or downward trend, while a bull market represents an upward trend.
During the global economic crisis of October, 2008, the stock market suffered one of its most turbulent times in history, losing 21% in one week. Other bear markets took place in 2001, 1987, and 1973-74.
The Stock Market
Markets are places that bring buyers and sellers together for the purpose of an exchange. Stock markets such as the New York Stock Exchange and the London or Hong Kong Stock Exchange are physical locations where exchanges are made. Other markets are “virtual.” The NASDAQ (National Association of Securities Dealers Automated Quotations), for example, is a system of computers that links buyers and sellers.
Large companies are generally owned by thousands of people called shareholders or stockholders. Over half of American families own shares of stock in companies — you do not have to be wealthy to buy stocks.
Investors purchase stock in companies to make money and increase their wealth. Stockholders hope that the value of the shares they purchase will go up in price, and when they sell, they will receive more money than they paid for the shares. Some companies also pay stockholders dividendThe portion of a company’s profits that the firm pays out each period to shareholders. Also called distributed profits. s (a share of the company’s profits).
People who own stock in a company have a voice in how it is managed. Every year there are shareholders meetings where people can vote on company plans and elect officers. Although every shareholder has a vote, those with more shares have more power in the decision making of the companies.
The company must be incorporated. Companies that are privately-owned do not sell shares to the public or trade on a stock exchange.
People who want to invest in the stock market (by buying shares of a company) can contact a stockbroker. A stockbroker buys and sells stock for clients. Stockbrokers receive a commission (fee) for this service. People can sometimes buy shares directly from a company. They can also buy shares online. People can also purchase stock directly from an individual who has a stock certificate that represents shares in a company (and sell it in the same way).
People who buy and sell shares of stock are sometimes categorized as “speculators” or “investors.” Speculators are usually involved in short-term trading, while investors have long-term strategies. A generalization about speculators is that they take far greater risks to obtain higher and quicker profits.