What Is the Stock Market?
Even if you have a retirement account or other investment portfolio, you can get confused about what the stock market really is. So let’s get it straight.
The stock market is a place where anyone can invest in a company by buying “shares.” Buying a stake makes you a partial owner of the company, although you won’t be able to make decisions about how to run the business. Once a business is listed on the stock exchange and investors start buying stocks, you can imagine the business being broken down into thousands of tiny pieces.
The terms “stock market” and “stock exchange” are sometimes used interchangeably. There are two main stock exchanges or places where stocks are traded in the United States. Both are based in New York: the New York Stock Exchange on Wall Street and the Nasdaq, which is located in Times Square. A company usually lists its shares for trading on one of the exchanges, but not on both.
Companies listed on the stock market are usually reputable enough to be serious players in their industry. A company enters the stock market through an initial public offering or IPO, which is the first stock it sells, in addition to private investors who provide funds to launch the company or help it grow.
If a company is doing well and its stock is popular, the price goes up. If the economy isn’t that hot, or if this company has a bad day in the press, the price could drop. These fluctuations affect how much your stake in the company you have already purchased in your portfolio is worth. If you decide to sell your shares when the share price goes up, you may be getting more money from the sale than you originally paid. If the share price drops when you sell, there is a chance of losing money.
Who are the people on the trading floor?
Back in the days before computers were available, traders had to go to the stock exchange and buy and sell stocks there. Most of the trading is done online now, so far fewer human traders are required to operate onsite.
To be honest, a lot for show. What happens on the computer is much less exciting than watching this guy or this guy react to market fluctuations. (Seriously though, everyone loves this guy .)
I saw a headline that the stock market is rising / falling. What’s up with that?
When you hear on the news that the stock market has had a good day or a bad day, that doesn’t mean that everyone on the NYSE is hysterical or computers break down. This means that index funds, which can quickly assess market dynamics, performed positively or negatively.
The two largest are the Dow Jones Industrial Average and the Standard & Poor’s 500. The Dow includes 30 large stocks, while the S&P 500 includes 500 large cap stocks, which are well established companies that tend to be of high value. …
While your portfolio may contain stocks of individual companies, you probably also have stocks in at least one of these popular indices. But let’s say, for example, the S&P 500 is having a bad day and you know you have a portfolio full of S&P 500 stocks. Should you sell your stock and get out of there?
Nope. You have to hold on. The effectiveness (think: popularity) of these stocks can fluctuate a day or even an hour. Your losses will only become reality if you actually sell your shares. If you hold on to them and the value of those shares recovers, the value of your portfolio rises again as well. This is why you must wait until the stock is “high” to sell, although if you are investing for long-term gains, such as retirement, you need to hold on to your investment for as long as possible – historically. , the stock market brings positive returns (returns) on your investments, even if there are periods of poor performance.
What about bonds and other types of investments?
You can buy a share of anything: debt, currency, gold. But bonds are important to ordinary investors.
When you buy a bond, you are buying debt from a company or government. You also do this in the form of stocks.
You’re like, “Yes, I’ll send you some money, because when you return the money to me, I’ll get a little more for the help.” Bonds are generally considered less risky than stocks because their value fluctuates less.
If the company you own the bonds for goes bankrupt, you will be listed to get your investment back; governments are not inclined to go broke, especially the United States – they always manage to pay their debts.
We’ve got more basics about bonds in this post , but for now, just keep in mind that you can buy more from the stock market than just stocks of individual companies. But not everything is traded on the site of any stock exchange. Bonds do not have a central point of sale like stocks, although you will hear a discussion about the “bond market.” And sometimes you hear people talk about the stock market or just “markets”, and this discussion will involve trading more than just stocks and bonds.
But what do I really need to know about the stock market?
Not interested in the daily investment news? No problem. The reason people talk so much about the stock market or “markets” is because they can serve as an indicator of the health of the US economy as a whole.
If the stock of one company falls, it means that there are probably problems with the performance of that particular company.
But if, for example, all the stocks included in the S&P 500 fall on the same day, something happens that makes investors worry about the larger business scene – maybe discussing a trade war or, you know, an impending pandemic. …
Should the markets go up? Then investors are optimistic.
Tracking daily fluctuations is unnecessary if you are building a treasure trove of balanced portfolio designed for long-term growth.