Seeking a simple and effective way to get into the stock market?
In these fast moving financial world, not understanding how the stock market basics works is not an option. You can't afford not to now how to sell and buy stocks, bonds and shares, how to invest in the stock market, and how bonds, stocks and options can make you money.
This post is an excerpt from the first chapter of our online stock market course "Fundamentals of the Stock Market", which gives you all the necessary terms and tools you will need in order to understand how the stock market basics work and how to invest in the stock market.
What is a Stock Market?
A stock market is a market where your securities are bought and sold, just as food is bought and sold at a grocery store.
Securities are certificates conferring ownership in a certain property or company. All kinds of securities are traded on the stock exchange. The main types of securities are stocks, bonds, warrants, and options (on stocks, foreign currency indexes, etc).
Stocks - Certificates of Ownership
A stock certificate shows that its holder owns part of a certain company. What prevents somebody from walking into any company’s office and claiming to be the owner? lack of proof in the form of a stock certificate is the answer. Only a stockholder who owns a majority of a company’s stock can claim to own that company.
Currently, physical stock certificates are becoming increasingly rare, because most transactions concerning stocks are performed electronically. Most owners of stocks prefer electronic records of their stocks that are held by their brokers.
A bond is a deed conferring on its holder ownership of the amount of debt amount stipulated in the bond. The issuer of the bond (either a company or the government) receives money from the bond purchaser in return for a commitment to pay the debt later. Both companies and the government issue bonds.
The bondholder is actually the owner of the bond issuer’s debt.
A warrant is a certificate granting its holder the right to buy stock in a company at a given price.
An option is a contract granting its holder the right to buy or sell a specific asset, at a given price, within a certain time period. The option holder is not obligated to carry out this transaction. Options can be issued for stocks, currencies, and indices.
What is a Firm?
When a group of people assembles in order to start a business, that business is called a company, or a firm. The business can be a manufacturer, such as Ford, or a provider of services, such as a laundry. If a company is big enough, it can be listed on a stock exchange.
What is Profit?
Profit is the difference between the money that a company spends (its costs) and the amount it receives (its revenue). Profits are usually measured over fixed periods of time: Annually, semi-annually, or every three months (quarterly). For example, if a company sold $400 million worth of goods in 2006, and its expenses totaled $390 million, it earned a $10 million profit for that year.
Every company traded on a stock exchange must publish a quarterly report listing its revenue, costs, and profits for the quarter, among other things.
Net profit refers to a company's profit after taxes have been deducted.
Short Background on the US Stock Market
The trading of securities in the United States began in Philadelphia in 1790. The New York Stock Exchange (NYSE), which was the first organized stock exchange in the US, was founded in 1817. US capital market is the largest in the world. The three main stock exchanges in the US are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the National Association of Securities Dealers Automated Quotations system (NASDAQ).
The behavior of the capital market is cyclical. Stock prices never move in a straight line; in fact, they constantly fluctuate. US capital has seen periods of both boom and depression during the 20th century. The first major stock exchange crash occurred on October 29, 1929, when the Dow Jones Industrial Average (DJIA),which is an index composed of the 30 largest companies in the US, fell 12.8%. A second major crash occurred on October 19, 1987, when the DJIA fell 22.6%.
An in depth knowledge on The Fundamentals Of The Stock Market is a must for anyone who is thinking about investing. So, if you are a beginner making your first steps in this exciting and very profitable financial market than you must check out the introduction video on "Stock Market Basics".
You may also be interested in learning How To Buy Stocks For Beginners which is an informative article which will give you a great base for investing and buying stocks.