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THE STOCK MARKET

 

The stock market is a huge market. That’s what it is, just

a huge market where stocks (pieces of paper which represents portions of a

company which may be traded as transferable certificates) are exchanged (bought

or sold) with money as the bottom line exchange factor, just like in any grocery

store on Main St. USA. Stocks are sold and bought in lots (100 stocks, 1000

stocks, etc…) or separately by stock.

 

The price of stocks is determined by Supply and Demand.

This is the interplay of the quantity of products or goods offered for sale at

certain price and the quantity of products or goods purchased or bought at those

prices in a free market. This is a very important point, because it relates to

everything you do when buying or selling. Think about selling your house now in

this market… OK. Now, think about buying milk at the grocery market. It’s the

same market but at a different level.

 

Did you ever wonder why dairy products are very reasonable

one week and then two weeks later the price is doubled?! This is supply and

demand at work. The demand for certain product goes up, and then the price goes

up. This is just like the stock market. Depending upon how good a company is

producing, as in good products, showing good customer service, selling a great

marketing program, the company may have a large demand and this means the price

of stock will go up. If the company is favored in news releases, this will also

tend to increase stock prices. This also works in the negative direction as

well, where the company produces inferior products and has bad news releases

about it.

 

Stock trading is easier than ever now with online companies

like Scottrade, OptionsXpress, Schwab, etc. Trades are fast, commissions are

low, training and advanced tools are at your fingertips.

 

EXCHANGES

 

Stocks are listed and traded at several organized exchanges

in the United States, which make up the stock market. To be “listed" the company

must meet certain criteria such as number of employees, size of company, how

much profit the company makes, etc… Stocks and other securities (bonds,

commodities, options…) are traded at exchanges with a physical location or on a

computerized system. The reason exchanges were created was to provide a safe and

fair platform where there were established rules and procedures to trade stocks

and securities.

 

In the United States the Security and Exchange Commission

(SEC) regulates the exchanges and ensures the rules and procedures are kept fair

for all. There are four exchanges in the United States for trading stocks. They

are:

 

The New York Stock Exchange (NYSE) - Chicago Board of

Exchange (CBOE) - The American Stock Exchange (AMEX) - The National Association

of Securities Dealers Automated Quotes (NASDAQ)

 

Some of the exchanges are fully automated systems which

electronically match buyers to sellers of stock. You must have a buyer of stock

for every seller of stock in the market. Other exchanges are what are called

“Open Outcry" auction systems. If you have ever watched stock market movies such

as “Trading Places" or “Wall Street", you’ll know what this looks like.

 

This huge market has, to some degree, an effect upon

everyone whether you understand or not. If you are a fund market manager or a

school teacher, you’re affected by prices and commodities of the market. You

both may drink orange juice and buy gasoline for your cars. You both may invest

in company stock, commodities, mutual funds or securities of one way or the

other. The point is that everyone invests. What you buy or what you sell someway

relates back to the markets. This is YOUR market as well and your neighbor’s.

 

Your investment into your knowledge of the markets will

benefit you whether it’s the relationship in stocks, commodities, mutual funds

or saving accounts. The more you invest in you own knowledge, the better

prepared you will be.