The stock market is part of daily news with prominent exposure given to market fluctuations, economic trends and scandals affecting equities. For the person new to the stock market, the constantly changing market dynamics can be overwhelming. Understanding the basics of the stock market help investors ease into the market, gaining experience on what information is pertinent to specific investments. There are some very simple ways to learn the basics of the stock market.
Review the main market exchanges in the United States: Dow Jones Industrial Average, S&P 500 and Nasdaq. An index measures sector performance grouping stocks with similar corporate funding, called capitalization. The Securities and Exchange Commission has basic information to familiarize yourself with the basic market indices.
Understand that stock prices are driven by supply and demand. You buy shares of a company at a price per share; when lots of people want the stock because of corporate revenues, a new product or other good news, the price per share goes up. When bad news, poor revenues or corporate scandal hit, the stock price goes down.
Differentiate the difference between a stock and a bond, both purchased through stock brokers. Stock shares represent a percentage of ownership in a company; as an owner your risk increases if the company goes bankrupt. A bond is a loan you provide the company for a period of time in return for interest; loans are more likely to be repaid in bankruptcy proceedings making bonds less risky.
Determine risk in stock and bond investments. Larger companies (large cap stocks) with established revenue and stock history are considered less risk than new startups or international companies with little history. Bond investments are rated by third-party companies, such as Moody's, AM Best and Standard & Poors based on the history of a company to repay bonds; high-quality bonds have a grade of A or higher.
Learn about fees. A financial adviser may charge a maximum 2.5 percent commission to buy or sell a stock. Bonds have a flat fee. Mutual funds can have an up front, back-end charge or no charge but do have annual fees that you should familiarize yourself with through the fund prospectus, which reviews the objective, management style, and all fees and risks associated with a mutual fund.
Read financial journals, such as Kiplinger, the Wall Street Journal or Barrons as well as visit popular online research sites, such as Morning Star, Yahoo! Finance and MSN Money.
Ease into the market with a small amount of money. Use a mutual fund that pools money from thousands of investors who have the same investment objectives. A small investment in a mutual fund reduces financial exposure while allowing you to experience the fluctuations in the market.
- Internet access
- Financial journal
- Investments in the stock market involve risk. There is no guarantee when investing in stocks and all risks should be carefully evaluated before investing.
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