Stock Market
What is a Stock? A claim on the assets of a corporation that gives the purchaser a share in the corporation Ownership
Where is a stock bought and sold? New York Stock Exchange (NYSE) Largest marketplace Must be a member 1366 members Seat costs $1 to $2 million American Stock Exchange (Amex) Smaller companies than NYSE NASDAQ Electronics based trading
What is an index? Gives an overview of how a market is doing Most famous is the Dow Jones Industrial Average Consists of 30 stocks Represents 1/5 of the value of stocks on the NYSE Other well known indexes NASDAQ composite Standard and Poor 500
How does the stock market work? Stocks are initially purchased by investment bankers The investment banks then sell the stocks on the exchanges The forces of supply and demand will determine if the stock appreciates in value or falls like a rock
Why do people buy and sell stocks? To make money Two ways to make money on stocks Dividends – a portion of the company profits paid to the owners Capital gains – selling the stock for more than was paid for it.
How do I buy and sell stocks? You must go through a licensed broker. This makes it easier to bring together buyers and sellers and protects people from scams Types of brokers: Full service broker Discount broker On-line broker
Should I buy stocks or buy the market? You could buy stocks on your own You could invest in mutual funds Diversifies your portfolio Must pay a fund manager Allows you to pool resources with others Buying the market means buying shares in an index If the index rises, so does the value of your investment Similar to buying mutual funds except there is no fund manager