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The Stock Market Basics
Transcript of The Stock Market Basics
What is the Stock Market?
The Stock Market is a term that encompasses the trading of stocks and bonds on what is called an exchange. The U.S. has 3 major stock exchanges; the New York Stock Exchange (NYSE), the American Stock Exchange, and the over-the-counter market. Of the 3, the stocks at the NYSE have the strictest requirements and receive the greatest visibility, making it a desirable place to be listed
What is a stock?
A stock is a certificate or security that signifies ownership in a company and represents a claim to a part of that companies assets and earnings.
Here, watch this video for help
Hypothetically, lets say we are going to buy stock in my new company, "Tyler's Turtles" a company solely devoted to giving turtles homes across the state, and the stocks are priced at $1 a share and we buy 10 by going to a broker who finds a seller. Now that we own stocks, if the company begins to make profit then the value of our ten stocks will go up and vice-versa if it does poorly.
Wait!! Is it that simple?
While buying stocks are easy, there is a lot of Risk involved. None of the money you invest is insured so if you lose it, there is no safety net. Most investors recommend that you only use supplemental money, that is, money you wont need in the next 3-5 years or else you could seriously jeopardize your financial security. Always be wary of the risk involved with a company
How is the price of a stock determined?
The price of a stock fluctuates each day based on how many people want to but it, which is called Demand. If a large amount of people want to buy a stock that doesn't have a lot of shares, the stock value will rise. The Supply of stock in combination with the Demand will determine a stock's value
So how do you make money in the stock market?
Money is made when a person's stock raises in price or when a person sells their stock in a company when it is worth more than they paid for. For example, we check our 10 shares in "Tyler's Turtles" and the stocks are worth $2, we have made $10 because the value of the stock has doubled since we bought it initially for $10. We now can keep the stocks and hope that their value continues to rise, or we can sell them.
The Power of Time
Time is the greatest variable in investing and can make or break an investment. All markets have ups and downs but the longer an investor sticks with the market, the better chances their investments will prosper. The most reliable stocks don't jump in value each day, but gradually increase by little incriments
Diversifying, keeping eggs in multiple baskets
Some of the most successful investors spreads their investments around to multiple types of investments in order to ensure profitability. While investing a large amount in a single company can have great rewards, there can also be catastrophic loss if the company fails. Spreading out investments helps to minimize the risk of investing and maximize the chance of profits