Archives: 2008 April

The Stock Market consists of many exchanges across the world , both physical and electronic, where stocks of companies are bought and sold.

Some people think that the stock market and Wall Street are the same. Wall Street in New York is just one example of a stock market. Wall Street though is significant in the sense that this is where the concept of a stock market started.

The Wall Street establishment was first built in 1653. Its purpose then was for defense and not for commerce. Dutch settlers fortressed themselves from Native Americans and British by building a 12 foot stockade fence. In 1685, the wall was torn down and replaced by a new street. The British named it Wall Street.

The Stock Exchange:

Wall Street is made famous with the emergence of two powerful stock exchanges. This resulted in the chaotic trading which turned out to be the financial markets that we know today.

The first stock exchange in the United States was founded in 1790 in Philadelphia. Two years later, a group of New York traders met and thought about setting up a security business. This 24 man group was the founders of the New York Stock Exchange.

As a kid, have you ever played the board game Monopoly? This is a game that deals with properties, banks, stocks in companies, infrastructure, and millions of colorful make believe dollars.

Like in Monopoly, the stock market is a game in which you have to decide on the buying and selling of your properties. Although in the case of the stock trading business, you are making decisions about stocks trading in the stock market.

The money you collect in Monopoly when you have circled the whole board game would be eqilivalant to the dividend payment in the stock market. The amount of money that you collect would be determined by the properties you have in the game. Just like in the stock market, the more shares you have, the larger amount of money you would be given.

When you are become bankrupt in the game of Monopoly, you have the power to sell your colorful houses or buildings when you need to rebuild your finances. In your stocks, when the value falls, you have the authority to decide which shares to sell out and which shares to retain.

Ok, so you want to dabble in the stock market. Unfortunately, you don’t know how and where to begin. So what do you do?

Well, the first relevant thing to do is ask the basic question of what is a stock and its significance.

A stock symbolizes ownership of a company. Some view stock as certificates. So the more stocks a person owns of a particular company, the more of the company they own. And the more the company they own, the bigger the influence they have in running the company. This is called equity investment.

The next thing to do is familiarize yourself with financial terms such as ‘price-earnings ratio’, ‘margin’, ‘option’, ‘earnings per share’ and ‘leverage’.

Then, it’s on to knowing where and how to actually buy stocks.

There are two ways to buy stocks:

1. brokerage service
2. online exchanges (e.g. banks)

Exchanges are services that allow investors to access stocks all over the world. Here, they can buy and sell stocks without the need for a broker. Certain banks allow you to set up your own stock portfolio and buy and sell stocks online using the money you have in these banks.

Trading the stock market is like a market place for businessmen. In a public market, goods are sold to the public. In a stock market however, stocks are sold to the public. Company stocks are sold in the form of shares. The more shares a person buys in a company, the higher his or her ownership interests are for that particular company.

The stock market consists of the primary market and the secondary market. Primary market is where companies directly raise finances for their operating expenses by selling shares to investors. The secondary market is for investors who buy and sell those shares to other investors. Their decisions are constantly based on changing market conditions.

A stock market is like an auction house. It is a systematic method of buying and selling. In a stock market though, it is a common sight to see people shouting and gesturing at one another. Today a lot of that old way of conducting the stock trading business is being done electronically.

The stock market is a complicated game. In order for you to succeed in this business, learning the basics of stock trading is an important factor for your financial growth.

Before risking your money with the stock market, you should be able to recognize the factors vital in choosing which company to invest in. Here are the basics in learning some facts about the company:

1) Revenue. This refers to the amount of money the company makes. Although some companies that are still in the early development stage have no revenues to offer, many of the companies that have been in the market for years make use of the revenues to cover dividends, operating expenses, interest expense, and other costs.

2) Earnings. This refers to the money the company makes. Earnings are the money that would not be used in covering expenses. This is the money that the company brings to the bottom line. Companies with large earning have an advantage in the stock market because investors examine the earnings made by the company they are considering to buy stocks in.