If you’re interested in investing but don’t have experience, the stock market can seem like a scary place. But with today’s modern technology, it’s easier and simpler than ever to own a part of your favorite company.
This guide will break down exactly what the stock market is, How Does the Stock Market really Work, and how you can get started investing.
The stock market is where investors buy and sell shares or stock. Stock markets used to be literal places, with trading floors across the globe where stock prices would be set during live, ongoing auctions. One of the most famous trading floors was located in New York City. Now, however, most bids to buy and sell stock occur online.
You may have heard the phrase, “the stock market is up/down today.” This tells you how all stocks are performing as a single entity. What investors typically refer to as the stock market are what are known as separate “indexes”.
Indexes include the Dow Jones Industrial Average, the Nasdaq Composite, and the S&P 500. Each index is comprised of a variety of stocks that are averaged together to give you an idea of how the overall market is performing.
If you only own stock from one or two companies, the value of an index may not indicate your stock’s actual performance.
Stock and share can be used interchangeably, as they mean the same thing.
When a company needs to raise money, oftentimes they issue shares. This is done through an IPO, also known as an initial public offering, where the price of shares is set based on the company’s estimated worth and the number of shares issued.
Money raised through selling shares is used to promote continual company growth while the stock continues to trade on an exchange, like the New York Stock Exchange.
As an investor, when you buy shares, you are buying a literal piece of that company. Once you own above a certain percent of a company, it’s possible to have a say in how that company is managed or operated.
In today’s digital age, you only need two things to participate in the stock market. Money and a broker. While some investors choose to hire a personal broker to handle their accounts, many choose to use online platforms like swell investing, which make investing an easy, step-by-step process that anyone can follow.
If you’re hiring a broker, you will need to look into reputable firms you can trust. Then you will typically sign a contract with the firm where you pay a fee in exchange for information, advice and a place to trade stock.
Online trading platforms let you open your own brokerage account for a nominal fee, allowing you to save money with each investment you make. You can also find an assortment of investing information online for free. Some platforms even offer tools and advice that can help guide you on your investment choices.
There are a lot of benefits to buying stock—that’s probably why more than half of Americans have tried their hand at investing. Besides being easy to buy, stocks are a great way to make money. Historically, stocks have offered an average annual return of 10%. You can also make money by selling stock, i.e. buying low and selling high.
Investing in stock also allows you take advantage of a growing economy. If the economy grows, it bolsters income, increasing the amount of money flowing into corporations. The higher the corporate earnings, the higher the returns on your stock.
If you’re interested in getting your feet wet with investing, there’s no better time to get started than now. Though the stock market may seem like a scary place, once you learn the basics, you’ll find that it’s easier than ever to participate.These were the few steps that shows that How Does the Stock Market really Work.
by: Sia Hasan