The stock market is a huge part of the global economy but in my experience it is a mystery to a large group of people. Most people know when the stock market is up or down but otherwise do not know the factors that contribute to this or what is means to them. Knowing what is going on in the U.S. Economy and the Stock Market in SO important if you want to take control of your finances and make the right investments. However, most people are easily bored or discouraged by the stock market. A bunch of random non-sensible numbers ticking across a screen does not seem as interesting as who got the latest rose on the Bachelor and who did not.
While there are stock markets and exchanges all over the world it is easiest to focus on the United States for right now.
Let me explain the stock market in simple terms that hopefully will not bore you to death.
What is stock?
When companies need money to finance their business they will issue stock. An investor gives a company money in exchange for "shares" of the company. The investor will buy these shares at a predetermined price. An investor is hoping that the company does well and that price will rise. Look at it like this, you lend your friend $5 for some frozen yogurt and you are hoping they use that $5 wisely and return it to you plus some extra money.
What is an IPO?
An IPO is an Initial Public Offering. When a company goes public there is an initial stock offering. As mentioned above investors can buy stock at a predetermined price. This price is usually established by analysts looking at all of the company's financial statements and valuing it's worth.
What makes up a stock price?
A stock price is a little more abstract. After the IPO the stock price will change based on supply and demand. If a company is successful the stock price will go up because more people will want to buy it. If the company is not successful the stock price will go down as people begin to sell their shares. It is like the sold out Kayne West concert. People are willing to pay more for tickets to be part of this allegedly amazing event so prices go up. Kayne walks off the stage and has a breakdown, everyone wants to get rid of those tickets and prices go down...
How is stock bought and sold?
While this question can be complicated the most simple answer is on Exchanges. The main exchanges in the United States are the New York Stock Exchange (NYSE) and NASDAQ. The NYSE is actually a physical place while the NASDAQ operates virtually.
How do you personally buy stock?
You can do it online or through an in-person broker. There are many broker options and all of them take a fee to buy and sell stocks. You may have heard of some of these such as E*Trade, Charles Schwab, TD Ameritrade, Fidelity, etc. If you are interested in buying stock then do some research and determine which platform would be best for you.
What does that stock ticker mean?
Whether you are looking on a TV or the internet a stock ticker is showing the current price of the stock and the change over that day's trading period. Since I am a Baltimore girl I will use the Under Armour stock ticker as an example:
UA is the Under Armour stock ticker. In this case the company name is also stated but in most situations that will not be the case. Look at the Blue Arrow. That shows where the stock is being traded. The price is currently highlighted in yellow at $21.11. The numbers in red show the dollar change for the day of a 14 cents decrease and a -0.66 percentage change.
This is a simple explanation of a stock ticker for a single company. They may also be provided for exchanges, funds, etc. This is a topic we can explore in a later blog post.
Feel free to reach out with any questions!