The Stock Market

Greed is Good

What is the stock market?

The Stock Market is a place where stocks and bonds are both bought and sold. It is a global marketplace where companies list their shares of stock for investors to buy or sell.

Companies raise money on the stock market through an initial public offering (IPO), the first sale of stock by the company.  The stock market helps these companies reach a large pool of investors in an organized exchange.

Stock markets were originally physical places—trading floors in New York and other cities where stock prices were set during a live auction. Today, most of the buying and selling of stocks is done electronically.


Calculator: How long to double your money?


The stock exchange

Within the Stock Market, the Stock Exchange connects the buyers and sellers by helping them trade stocks. It facilitates:

  • Listing the stocks
  • Processing payments
  • Tracking prices and sales data

The two major stock exchanges in the U.S.

  1. The New York Stock Exchange (NYSE) – the largest.
  2. Nasdaq Stock Exchange – smaller and home to more technology companies.

Other prominent world exchanges include: Tokyo, London, Germany, Hong Kong, Shanghai, Bombay, Australia, Moscow and São Paulo.

All of the stock exchanges create a globally connected marketplace together.

The world’s top stock markets

  1. New York Stock Exchange
  2. NASDAQ
  3. Tokyo Stock Exchange
  4. London Stock Exchange Group
  5. Euronext
  6. Hong Kong Stock Exchange
  7. Shanghai Stock Exchange
  8. Toronto Stock Exchange
  9. Frankfurt Stock Exchange
  10. Australian Securities Exchange

Bear vs. Bull market

The terms bear and bull markets are used to describe whether stock markets are increasing or decreasing in value.

Bear investors are those who buy stock slowly and cautiously.

  • A Bear Market refers to a stock market in decline – generally, the economy will slow down and unemployment will increase.

Bull investors are the ones considered tenacious and will charge ahead to put more money into the market.

  • A Bull Market refers to a stock market with an upward trend. In a bull market, there are usually high employment levels and a strong economy.

What is an index?

An index is a grouping of stocks (usually the largest on the exchanges) that offer an overall barometer for how the market is performing.

Some examples of indexes are:

  • Dow Jones Industrial Average: an average of the stock prices of 30 large, U.S. companies.
  • The S&P 500: an index with an average of 500 companies.
  • The Nasdaq Composite Index: exchange where technology stocks are traded.

Shares, stock and equity… what do they all mean?

These are all essentially referring to the same thing.

Stock market glossary of terms

Ask Price: What it will cost you to buy a share of stock

Bear Market: Term that describes a market where prices are falling faster than their averages (opposite: Bull Market)

Bid Price: The highest price you might receive if you sell your shares back

Blue Chip: Stocks that represent companies that have strong earnings and good reputations

Bull Market: Term that describes a market where prices are rising faster than their averages (opposite: Bear Market)

Close: The last price of the trading day

Dividend: Money paid per share to shareholders of a particular stock

High: The highest price during the day

Low: The lowest price during the day

Market Capitalization: The share price multiplied by the number of outstanding shares which roughly indicates the value of the company

Market Volume: number of shares being traded over any period of time

Open: The first price of the day

P/E ratio: Price-to-earnings ratio; the price of a company’s stock divided by its Earnings Per Share

Spread: Difference between the bid and ask

Volume: Number of shares traded

Stocks can be an unpredictable and risky investment. It is recommended that you contact your financial advisor or an investment professional to help you make the best decisions.

Fun facts:

  • Muriel Siebert was the first woman to own a seat on the NYSE in 1967.
  • The “stock market” was created in May 17, 1792 when 24 stockbrokers and merchants signed the Buttonwood Agreement.
  • The NASDAQ stock exchange began trading in 1971, becoming the world’s first electronic stock market.
  • Black Monday, October 19, 1987, the Dow Jones Industrial Average fell 22.61%, the largest one-day percentage loss in history.
  • The East India Company is known to be the world’s first publically traded company.
  • “Greed is Good”. Famous line from the 1987 film Wall Street by Gordon Gekko. Michael Douglas plays a corporate raider who buys underperforming companies and tears them apart for a profit. Watch the entire speech here:

 

References

  1. Investopedia “Stock Market” Web + Video
  2. Kiersz, Andy “The NYSE Makes Stock Exchanges Around The World Look Tiny” Business Insider Web 18 Nov. 2014
  3. Kennedy, Mark “What is a Stock Index? How and Why to Trade an Index” etf.about.com
  4. Web. 8 October 2009
  5. “Stock Market Information: All About the Market and How You Can Get Started” Wise Stock Buyer Web. 29 July 2012
  6. http://www.investopedia.com/articles/basics/03/100303.asp

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