A Short Introduction to the Stock Market

A stock market, equity marketplace, or mutual funds market is an association of buyers and seller of securities, representing ownership interests in companies; these can include securities listed on the over-the-counter bulletin board or registered offerings. A company’s stock is listed and traded in a variety of venues, including local exchanges, regional exchanges, national exchanges, futures exchanges and online venues. In the United States, there are currently 20 such exchanges. The New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) are the two largest. Many large corporations and mutual funds use the New York Stock Exchange and the AMEX. In addition, a number of investment banks, brokerage firms, and other financial institutions operate through stock markets.

The buying and selling of securities on the stock market require investors to follow a number of rules and guidelines. First, all transactions must be executed through registered brokers or representatives who hold the cards on both the buyer and seller of the security. Second, only accredited direct traders and money managers may participate in buying and selling of securities on the stock market. Lastly, all brokerages and institutions must register with the SEC to provide buyers and sellers with up-to-date information about trading on the stock market.

Buyers and sellers can buy shares of a company by purchasing ‘baskets’ of shares. A small number of shareholders actually deliver shares to buyers. The actual shares are then sold to other investors through a broker or through the company’s agent. The process of selling the shares can take several days, and the proceeds from the sale usually come out of the seller’s account within a week. In general, when an investor sells his shares on the stock market, he is rewarded with a profit for his investment.

The stock market in times goes through cycles that may last months or even years. However, even during bear markets, the share prices usually do not fall to the point where the investors are wiped out. Usually, during bull markets, the stock market has stronger earnings per share growth, and more investors are encouraged to buy up stocks. Bear markets, however, see weaker earnings per share growth along with higher percentage of decline in the share price. There are instances when the share price may actually fall below the book value, but this does not mean that the investor would ultimately lose his money.

There are two different types of trading on the stock market. First, there is short selling, which is when an investor sells his shares of stock for less than what they are worth. This happens when the stock is not actually traded in the open market. Short selling occurs most frequently during hot trading periods when traders want to sell their shares of stock for less than the actual cost of the shares.

Another type of trading is spot trading, where traders buy and sell shares without actually needing to wait for a company to issue an official bid or ask for the stock. Spot trading is done by selling a stock when it is offered at a certain price and then buying it back at that same price. Most investors use a variety of tools including news releases and various Internet services to determine the market’s momentum and direction. Market makers and other professionals in the industry to help traders determine if the bid-ask spread is justified. Traders also use various indicators such as moving averages, relative strength index, and oscillators to determine the best times to buy or sell.