Before one can start investing in the stock market, he must know the terms, rules and regulations of the stock market. You cant expect to know which stocks to buy without having some background and doing a full research about the desired stock.
Know Your Stock Market Terms
Before one can start investing in the stock market, he must know the terms, rules and regulations of the stock market. You cant expect to know which stocks to buy without having some background and doing a full research about the desired stock. Just because Apple shares are the highest priced and most talked about, it doesn't mean you should buy Apple stocks. Remember – the stock market today will not be the same tomorrow, and you can not assume what will happen to a stock's price without knowing all the parameters. If you want to know all about the stock market, or you consider to start investing in the stock market, you can download our stock market online interactive course which will give you all the tools you need in order to start investing in the stock market.
The American Securities Market
All markets work on the same principle: creating a venue for buyers and sellers to meet. The price for all securities balances supply and demand. The principal difference between the various markets is the method used to reach that balance. A number of markets exist in the United States. Some of them are very large, while others are small and local. Some of these markets handle only options trading, while others are limited to commodities. Two of the most important markets are: The New York Stock Exchange (NYSE) and NASDAQ.
Fundamental Concepts
Ticker Symbol
Markets in the US assign a ticker symbol (or stock symbol) to each firm that is listed on them. Trading in a company’s stock is conducted solely according to the ticker symbol. The symbol, which is composed exclusively of letters, usually resembles the name of the firm. Ticker symbols on NASDAQ have 4 letters. For example, Apple’s ticker symbol is AAPL. Ticker symbols on the NYSE have between one and three letters. Ford’s symbol is F. Using a company’s full name or an incorrect symbol can cause a transaction to be conducted in the wrong stock.
Indices
The Dow Jones Industrial Average (DJIA) is composed of the thirty largest listed companies in the US. The firms represent a variety of sectors. The index’s value is calculated as a mathematical average of the share prices of those firms regardless of their market capitalization. The higher a firm’s share price rises, the greater its effect on the index. The NASDAQ Composite Index includes all stocks listed on NASDAQ. The weight of a stock in the index is determined by the firm’s market cap. The larger a company, the more that the change in its share price affects the index.
The majority of companies listed on NASDAQ are high-tech companies. The S&P 500 lists the five hundred largest companies in the United States. As is the case with NASDAQ, a company’s market cap determines the weight of its stock in the index. This index is considered to be representative of the American economy as a whole.
Useful Terms
1. Going Long – buying a share.
2. Selling Long – selling a share.
3. Going Short – buying a share that the investor does not own.
4. Selling Short – selling a share that the investor does not own.
5. Covering Short – buying a share that the investor sold short.
6. Round Lot – for reasons of convenience, buy and sell orders are usually requested in multiples of 100 shares.
7. Odd Lot – orders that are not multiples of 100. Because these orders cause confusion and other problems, the fees charged for them are higher.
Order Types
Market Order
An order to buy or sell shares at the market price.
Limit Order
1. An order that limits the purchase price. For example, if an order is placed to buy 1,000 shares of Microsoft with a $100 limit, then the broker will buy the shares only if the price is below $100 per share.
2. An order that limits the selling price. For example, if an order is placed to sell 1,000 shares of Checkpoint with a $200 limit, then the broker will sell the shares only if the price is above $200 per share.
Day Order
An order is limited to one trading day. If the transaction is not completed by the end of the day, the order is canceled.
Good until Canceled (GTC) Order
This order remains valid until it is filled or canceled. It is important to keep this type or order constantly in mind since it can be suddenly completed a year or more after being placed.
Although trading stocks can be very profitable and exciting, if not executed correctly it will have a negative effect on your portfolio. That is the main reason why you need to initially come to grips with the Stock Market Basics For Beginners. Check out the link and get started the right way.
You may also like to learn How To Buy Stocks For Beginners and get an indepth look at the basics of buying assets on the stock market, how to choose the right stock and where the market is going, so read the article and make your first step to financial freedom.
