An Overview on Reading the Stock Market

A lot of people are familiar with the stock market. However, most individuals remain unfamiliar with terms like “stock”, “buying and selling of stocks”, “stock market charts, and “bulls and bears”. Even the term “stock market” itself remains a point of confusion for those who don’t have financial expertise. There are times when they would scratch their heads in bewilderment whenever they hear their neighbors complain about the low prices of stocks on the market or if a colleague suddenly gets a huge windfall from his stock market investments. What most people are aware of is that the trading on the stock market can lead to booming or bankrupt businesses if these companies have played the “stock market game” correctly. Simply put, stocks are representations of the company’s assets and profits. If the company makes a profit from the stocks, this value is divided yearly among the shareholders in the form of a dividend. As an example, if a company makes a profit of $100,000 this year, and it has 20 shareholders holding 1 stock each, the shareholders would receive a dividend of $5,000.

The Stock Market Defined

The stock market – also known as the “stock exchange” – is a financial institution wherein licensed brokers trade company stocks and other securities – including privately traded securities – that are approved for trading by the exchange. Exchanges can occur physically or virtually. Brokers buy and sell stocks based on the needs and requirements of the people and/or companies they represent.

The two types of stock markets are…

• Primary Stock Market = for trading of Initial Public Offerings (IPOs) and other brand new issues by sellers and buyers

• Secondary Stock Market = for trading of existent stocks in the market by buyers and sellers

Common Stock Market Terms

Stock market “lingo” is nothing to be confused or feel daunted about. In order to understand the trends in the stock market, you need to learn certain commonly used terms and be able to assess stock market charts. By taking the initiative to learn the basics of the stock market, you will be transformed into a knowledgeable investor and be able to make good stock decisions.

Let us take a look at some of the terms that you will most likely encounter on the stock market…

Stock price = This is the value for which stocks are bought and sold. Factors that directly impact on stock prices are the position and performance of company issuing the stocks. Another term related to the stock price is the market capitalization – or simply market cap – which is the stock price multiplied by the number of shares. Other factors that affect stock prices include current performance and expansion and future growth. Let us put it in simpler terms. If a company is doing poorly in the stock market, their stock prices decline in value. In contrast, if these companies are performing well, you will see the stock prices shoot up in value.

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