Stock Market 101: Everything You Need To Know
How A Beginner Can Start Making The Correct Investments
The stock market basics begin with knowing the definition of stocks. Stocks or shares represent a small piece of ownership of a company. There are two types of stocks common and preferred. The common stocks provide voting rights to the owner or shareholder. The preferred stock does not provide voting rights to the shareholder. Common stocks are normally being talked about in the news and also called equities. Equities is another name for stocks. Stocks are bought and sold on a stock market by brokers and traders.
The stock market is also called a stock exchange. A stock exchange will sell and trade stocks along with bonds. Stock can be traded on stock exchange only when the stock is listed on the stock exchange. Stock will be purchased and sold by brokers who are members of the stock exchange. The understanding the stock market, a person has a good chance in growing their stock investment.
A stockbroker will be a representative who authorizes to buy and sell stocks on your behalf. Most stockbrokers will work with brokerage firms. There are plenty of brokerage firms available to anyone who would like to make an investment. You could use an online brokerage firm such as etrade. You would establish an account with a brokerage firm. Some firms have a minimum requirement for opening a brokerage account. Some online brokers may have no minimum, but normally a company like etrade may have a minimum of $500 to start a brokerage account.
You may ask the question, what is a market index. The market index is also called a stock index. The market index will track stocks that specifically represent a sector or market of the stock market. A market index can also represent part of an economy. The three most popular market indexes are the Standard and Poor 500 Composite Stock Price Index(S&P 500) Dow Jones Industrial Average (DJIA), and NASDAQ Composite. Market indexes normally categorized capitalization and sector.
A market can index can be either market-weighted or price-weighted. A price-weighted market index will have stocks provide some influence on the index based on the stock’s price per share. A stock with a higher stock price per share will have a greater influence on the index than a stock with a lower share price. DJIA is an example of a price-weighted stock index. A market-weighted index is an index who has stocks that will influence the index based on the market capitalization of the shares of the company in the index.
A company with the larger market capitalization will have more influence on the index than a company with lower outstanding shares or smaller market capitalization. Market indexes will be useful in making investment decisions. The information provided by each index will vary. Some indexes should not be utilized for some sectors because it will not provide a clear picture of a market as a whole. S&P 500 stock index will provide information regarding large-cap companies in the United States. The information is helpful if you need an indicator of performance for large capitalization.
You will be able to answer how to pick the right stock by understanding the fundamentals of a company. The correct stock begins by finding a company who shows they are financially healthy. The financial health is determined by analyzing a company’s balance sheet, income statement, and statement of cash flows. There will be many ratios used to compare companies with other companies. Information will become more important when a person determine the type of investor they plan to be.
You may invest in stock for growth or appreciation of the stock price. You also may invest stocks on the perception of value. An investor may feel the stock is undervalued and it is a good buy at certain stock price. The two different investors will use information gained from fundamental analysis differently.