A simple plan to help guide you through the obstacles. This page was written after having spent over 10 years learning how it all works, after those who knew wouldn't tell me.
INTRODUCTION TO THE MARKET
The fresher the fish the better the price at the market. The
"stock market" is just that- a huge "market" where stocks are traded
by many different vendors. Similar to the way other things are traded- like fish or
vegetables at the old-world market, or cows at the cattle auctions- stocks are
traded "at auction". Prices are determined by supply and demand- by
sellers and buyers willingness to buy or sell at a certain price. As demand goes up,
the price goes up, and so on.
Imagine, over 100 years ago, brokers literally shouting "I have 100 shares of Pacific Railroad for sale, how much will you offer me?" If a broker had an order to buy some stock he would shout "Someone sell me 100 shares of Pacific Railroad! Who has the best price?" You've probably seen some of that happening- in more modern times- in film clips of the Chicago Board of Trade where wheat, corn and pork bellies are bought and sold. Market trading is more organized now. Computers do the shouting.
Brokers arrange for the actual trades (isn't "broker" a funny name for someone that handles your money). A broker is someone who who sells stocks for a dealer. Charles Schwab is a dealer. The dealer holds inventories of stocks and sells them through the sales guy. The sales guy is the broker or the specialist. If a sell order comes across the computer at an attractive price, the dealer buys (through his agent, the specialist) , and adds this stock to his inventory. The brokers, and specialists, using computers, bring the dealers and investors together.
What makes the price of a stock change?
Companies are expected to earn profit. If profits increase, the stock
price will likely
increase. Even if investors think the earnings will increase,
the stock price may go up. If good news comes out on a company,
the price, and demand for the stock may go up. With bad news, the price
and demand may go down. The price of a stock is even more dramatically
affected when supply is very high or very low. It is not so uncommon for
certain unscrupulous individuals to "create" news or other financial
information, for the purpose of duping unsavy investors into creating a demand
situation, into which, the unscrupulous-one "sells into" and makes
an unfair profit. Investors beware.
There are several different prices:
Opening Price is the first price paid after trading starts, usually when the stock exchange "opens its trading doors", usually in the morning. Sometimes, opening price is higher or lower than the closing price of the previous day (orders are placed overnight, and after stacking up, affect the demand- and, thus, the opening price.
Closing Price is opposite- its the price of a stock when the market closes- the price "at the close".
Ask price is the price you will pay for a stock (and is slightly more than the trading price because it includes a dealer "commission").
Bid price is what the broker, or agent, will buy your stock for (and is slightly less than the trading price because it includes a dealer "commission").
Spread is the difference between the bid price and the ask price.
If many buy orders come through the specialist, the price for the stock will be increased. If many sell orders come across the desk, the price will go down. Supply and demand drives stock prices. Lots of orders reduces the spread- thinly traded stocks have a higher spread.
Three Different Stock Exchanges:
There are several organized "exchanges"
in the US that make up the stock market. They are the New York
Stock Exchange (NYSE), the National Association of Security Dealers Automated
Quotes (NASDAQ), and the American Stock Exchange (AMEX). For a company's
stock to to be "listed", or traded on a particular exchange, it must
meet that exchange's requirements of profit, size, employees and the like.
Penny Stocks?
You get what you pay for- not much.
Many new investors are drawn towards the purchase of "penny stocks".
Penny stocks, as a group, have little demand in the "market"
With penny stock, even when there is good news about a company, who is
going to buy the stock from you?? Penny stock is rather like Ostridge
meat- it may be a good product, but there is no market (demand) for it.
The best fishermen sell the best fish.
Teach Yourself:
One of the best investments you can make, up front,
is to learn the lingo of the market. Reading articles written by professional
analysts and experts will be worth more in the long-run than just jumping in
the market willie-nilly. Get some general information about the investment
climate, market momentum and direction (up or down) before you invest. .
Believe me, this will be of more value than an e-trading account if you don't
know what your doing, or why your doing it.
Your First Investment:
Barron's Dictionary of Finance and Investment Terms:
682 pages of raw financial terms, about $15.
Barron's Finance and Investment Handbook:
A powerful book of finance terms and data, (over 1200 pages) about $35.
Your second investment:
Click the current cover and subscribe now:
Read, learn and apply new terms and concepts:
Learn to read the stock pages:
Buy the book How To Read The Financial Pages
(if you by the $35
Barron's Guide
you will already have it ).
How
to Read the Financial Pages. This $6 book and 20 minutes will open up
a new world!
Twenty minutes with this book will enable you pick up the financial section of most any newspaper and understand the stock market data you are reading.
Invest Comission Free:
If investing, with smaller
cash outlays interests you (several hundred bucks or less),
you will want to learn about Dividend Re-investment Plans. These plans,
also called DRPs DRIP and Direct Investment Plans and allow share holders to
cut out the middleman (broker) fee. The sponsoring company pays most (or
all!) fees: Direct
Investment Plans Explained Here
webmaster
http://pages.prodigy.com/wealth/learn.htm