What Is The Stock Market
The stock market can seem, well, intimidating at first. We know the numbers and graphs and movies make it seem like rocket science.....we're here to show you it's easy as pi(no pun intended)! Today in The Bull Pen we're going to be going over everything you need to know about the stock market, before the next opening bell.
What is it?
First and foremost, let's talk about what people mean when they say "stock market". When people use the term "stock market" they're usually referring to all the publicly traded companies in the United States. A public company is any company that is owned by multiple shareholders and listed on a stock exchange. (more on that later)
There are 3 main Indexes (fancy word for collections of stocks used as an average/benchmark) that make up the "stock market".
The Dow Jones Industrial Average is a collection of 30 companies traded in the U.S. It is usually regarded as the second most accurate benchmark for the U.S stock market. It's also called "The Dow" or "DJ".
The NASDAQ Composite is much like the Dow Jones but with a few key differences. Firstly, it contains 2,500 stocks instead of just 30, which means a more representative sample. The NASDAQ is tech-heavy, which means a large amount of the stocks included are technology stocks, which results in similar performance as the technology sector.
The S&P 500 is the most accurate representation of the public economy as a whole. Usually, when people talk about the stock market, they are referring to this. It includes 500 of the top-performing companies and has no blatant sector bias.
Now that you know what people are talking about, now you can learn about the logistics behind stocks, exchanges, and markets.
image by Easy Peasy Finance
How Does it Work?
Don't let The Wolf of Wall Street fool you; the stock market is a simple concept that anyone can understand. We are going to break down how the stock market works well enough that you could be in the next Jordan Belfort movie!
We are going to be using the terms Stock and Share a lot, so let's define them!
Stock- is a publicly traded company; hence the stock market.
Share- are the things that a stock is composed of. Think of a whole pizza as stock, and the slices as shares.
Typically a company will have millions of shares, but just because you may only own a few, doesn't mean your shares are worth any less. Whether you own 1,000 or 100 shares, they all move proportionally as the value of the company moves. Never feel like you have to buy a certain amount to make it "worth it" don't get attached to the number of shares, think about the total dollar amount invested.
Why do companies do it?
Companies go through something called an IPO which means initial public offering. This means it's the first time a company is going on the stock market. companies go to the stock market because they can reach millions of investors with ease. If a company is private they have to find investors like the guys on Shark Tank, which is a lot more difficult. The more investors they have, the more money the company has to expand.
image by Times
How Do I Invest?
Now that you understand what the stock market is and how it works, you might be wondering how you can get in on the action. Well, we have good news! As long as you are over 18 years old, starting to invest is easy! (If you are under 18 see https://www.thebullpen.info/post/how-to-invest-if-your-under-18)
Your first step is to open an "Individual Brokerage" account at one of the main online brokerages like Etrade, Charles Schwab, or TD Ameritrade. This will give you the ability to begin buying and selling your first shares of stocks.
There are many different strategies for trading shares of stock, but there are two things in The Bull Pen handbook you cannot forget:
STAY AWAY FROM MARGIN. If you are first starting out investing, there is no reason to ever use margin, stay away from it at all costs no matter what deals the brokerage offers you or what you hear on social media. A margin is an option of taking a loan of money to buy shares of stock. this means if the stock loses $10 worth of value, you will have to pay the brokerage $50 back.
DO NOT DAY-TRADE. unless your brokerage account has a minimum value of $25,000, day trading is illegal. You are legally allowed to day trade 3 times a week; anything more could result in your account being locked. Day Trading can happen in many different forms, but most often, buying shares and selling them on the same business day.
We hope you feel just a little bit more comfortable about the stock market now and if you aren't ready to invest on your own yet, at least now, you can join in the conversation around the dinner table!
How'd we do?
-We hope this article has helped. If it did... Let us know! We are always looking for feedback and are happy to connect with readers whether it's by email or by comments on the article. Thanks for reading, and as always, let the bulls run! 🐃🐃
DOW Jones= 33,718.00 NASDAQ= 13,580.00 S&P 500= 4,280.75
What are index prices when you are reading this article?
Published on 6/29/22. Read important disclosures listed in the header. This is not financial advice, simply education. Do not take this article as personalized financial advice, we do not know any individual personal situation and do not intend to be the deciding factor in any financial decisions.