Understanding the Basics of Stock Market Investing

The stock market is a realm of investing that many people assume they cannot understand. Almost everyone has heard sordid stories about the stock market, but only a small percentage of people really comprehend the stock market and its various components.

The Stock Market Defined

The stock market – sometimes referred to as the equity market – is a central part of the overall world economy. The market offers companies a network where they can receive large amounts of capital from investors.

Investors then receive a stake in the ownership of the company and can profit from its positive economic performance over time.

Ownership of Stocks

When you as an investor own stocks, you own a share of the company, and the rights associated with it. These rights include entitlement to some of the company’s assets and earnings. So the more shares of a stock you own, the greater stake you have in the company.

Those who hold stock in a company are referred to as the company’s shareholders. You may then be entitled to some voting rights in the company.

The Stock Exchange

The stock exchange is the grand “forum” where stocks are listed for trade. This is a place where buyers and sellers meet (virtually, that is, not usually in person) to coordinate trades. Simply put, the stock exchange is a marketplace, either physical or online, where investors “gather” to trade stocks.

The typical imagery that most people think when “the stock market” is mentioned is the traditional “exchange” with a physical trading floor filled with the chaos of thousands investors trading at once. However, other exchanges are formed through the Internet, which is increasingly becoming the norm for more simple stock purchases and sales.

How to Trade Stocks

A trade requires sellers to ask for a set price for the stock in their possession, and a buyer to bid a certain price for that same stock. The transaction takes place when the bid and asking prices match. Stocks are generally sold on a first come, first served basis.

Different Types of Exchanges

Each country manages its own stock market, including different stock markets even within the U.S. For example there is the NYSE, the NASDAQ, and AMEX, as well as many other types of exchanges.

Some of these exchanges trade only through a physical trading floor, while others use the technology available on the Internet for most of their transactions. Few of us “regular” people will ever buy or sell directly on an exchange floor.