Being a confident stock trader or investor involves getting to grips with the basics of the market and how stock trading works.
What is the Stock Market?
The stock market is where shares are bought and sold by individual and institutional investors. In the modern era, the process is conducted electronically through major stock indices such as the Nasdaq 100, FTSE 100 and DAX, each of which represent the performance of a basket of constituent stocks.
These stocks are tracked by the market index to come up with a value for the index based on weighted market capitalization methodology. This means that a large movement in the price of a single large stock can influence the index on which it is listed.
What are stocks?
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Stocks are effectively the ownership certificates of a given company. They are issued by a business to raise capital for growth, and they fluctuate in price depending on the company’s performance. They can be listed on the stock market (public) or may only be available to private investors (OTC or over-the-counter stocks). Commonly traded stocks include Boeing, Xerox and Apple, the latter of which is traded on the Nasdaq 100, Dow Jones and the S&P 500.
Events such as product launches, a new CEO appointment, and earnings announcements are all instances that can move a stock’s price and influence a choice of stock. More of these factors are discussed in the ‘How do you pick the right stock’ section below.
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Shares on the other hand refer to the proportional ownership of a stock in one particular company. For example, owning 50,000 shares of a company with 1 million outstanding shares would give an investor a 5% ownership stake.
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