Your Introduction to the Stock Market

The Basics

If you’re looking to invest in the stock market or invest in a publicly traded company, you’ll first need to know about stocks. Stocks are way to show that someone has purchased a piece of a company.

A company is usually a privately owned company – meaning that the public cannot purchase any part of it – or it is a publically traded company. This means the company has issued stocks for the general population to purchase.

Types of Stock

In general there are two kinds of stocks you can purchase. There are common stocks and preferred stocks.

With common stock, when you buy into a company, you’re also getting the right to vote in what happens with that company. For example, owning common stock in a company lets you vote on board members when elections happen. You’re also entitled to dividends. Dividends are monies paid out to stock holders from company profits. The more stock you hold and the more profits the company makes, the more dividends you’ll be paid. Common stock is the most popular stock option.

Preferred stocks are the second kind of stock. These have fewer to no voting rights compared to common stocks. But preferred stock dividends are paid before common stock dividends are paid. So while preferred stock owners don’t have a vote, they are paid before other stock holders are paid.

Buying Stocks

Buying stocks in a company can be an easy process. But there are some important steps you’ll want to make sure you take before purchasing stocks in a company. First, do your research. If you’re just getting started in the stock market, you’ll want to contact a brokerage firm. Larger brokerage firms will most likely have the best trained individuals to give you sound advice on where to invest your money wisely. So research brokerages firms and contact the one that you feel the most comfortable with.

If you have an idea of the companies that you’re interested in investing with, you may be able to use a smaller, less expensive brokerage firm. Many firms operate online, so you can do your trading right over the Internet. No matter what, you’ll definitely want to make sure that you research any company that you’re considering investing with. You will want to know the company’s financial history and what the company is planning for the future.

Selling Stocks

Selling stocks is much like buying stocks. The main purpose in selling stocks is to make a profit – or in a worst-case scenario – to minimize losses. When you purchase a stock, the ultimate goal is to purchase a stock that is low in cost, but then sell it when the price has gone up. On top of dividends that are paid out, this is how someone can make profits by selling stocks he/she has purchased.

Stock Exchanges

In America, there are two main places that companies list their stocks – the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). The NYSE has been around since 1792 and is the world’s largest stock exchange based on US dollar value. The NASDAQ began in 1971 and was the first electronically operated stock exchange.

The NYSE and NASDAQ is where almost all American stock exchange – or purchasing and selling – takes place. You can buy or sell stocks on these exchanges just about any week day of the year – except federalholidays – during normal business hours.

Each company that is listed on either the NYSE or the NASDAQ has an abbreviation and you can look the value of your company’s stock based on this abbreviation.