Stock Market Basics

Stock Market Basics Made Clear

You see the streaming numbers on the television screen, the crazy people on the exchange floor, all the often confusing commercials yet it all seems Greek. You are in real need of a clear explanation of stock market basics.

What is the "market"? The stock market is simply an exchange where everyone can buy or sell shares of stock. Today, these exchanges can be actual buildings with crazy traders flashing funny hand signals, or it can be online existing only in cyberspace.

What is a share of stock? When you purchase a share you then become a shareholder. A shareholder is basically a partner in the business. So, when you purchase a share of stock you are buying a very small piece of that entire company.

The letters and numbers you see flashing across the bottom of the screen when watching a business channel represent two things. The letters are a stock symbol. It is simply an abbreviation for the company it represents.

The number next to the letters signifies the "quote". Quote is just a fancy word for what price was paid the last time someone bought a share of that stock. Today, quotes are made down to the penny. For example, if you see "12.31" next to your symbol, that means the most recent trade was for shares sold for $12.31. All quotes are in U.S. Dollars.

The two other numbers commonly seen besides the quote are the "bid" and "ask". The bid is the highest amount someone is currently willing to pay for a share of that stock. To understand clearly, think of it in terms of selling a house. The bid for a stock is the same as the highest current offer for a house on the market.

The lowest price someone is willing to take for a share of stock is called the ask. Using the same house example, the ask is the listing price. When the holder of a share of stock sufficiently lowers their asking price, or the highest bidder increases their bid to match the ask a trade occurs.

These are the initial stock market basics. There is a wealth of additional information for one to absorb before making their first trade. An educated trader is a rich trader!

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