Everything You Need To Know About Stocks – Everyone has heard of the stock market. You’ve seen headlines on the Dow and S&P or heard about SnapChat and Facebook’s IPOs. Maybe your neighbor told you about that stock that was a “sure thing.” But since you probably didn’t have an introduction to home finance at school along with our Woodshop and Home Ec courses, you may not really understand how the stock markets work.
When I was a kid, I thought you could buy stock in anything. I knew my father had stock in McDonald’s and a few other companies and I thought that meant any company or product you liked you could buy stock. “We should buy stock in Mike ‘n Ikes.” It wasn’t until I was in high school that I started reading about economics and asking more questions about the stock market. After years of reading, investing and working on Wall Street; Here are 10 things I believe every adult should know about the stock market.
- 1 Everything You Need To Know About Stocks
- 2 Everything You Need To Know About Trading Meme Stocks
- 3 What Is Strike Price In Options Trading? Everything You Need To Know
Everything You Need To Know About Stocks
I’m starting here since it was my first misconception about the stock market that I mentioned since I was a kid. There are many types of ownership for companies, but on a very broad basis, we can divide them into two groups: public companies and private companies.
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Most companies in the world are private companies. These are companies that are owned by an individual or small group of individuals and ownership does not change regularly. Private companies run the gamut from the big ones, like Mars Candy (the maker of M&Ms) to your local dry cleaner. If you want to buy a private company, you should approach the current owners directly and make an offer. If the company is not active for sale, this would be difficult to do since private companies do not release their financial results to the public. I mean, have you ever asked your dry cleaner how much he made in 2016?
Alternatively, a public company has a portion of its ownership available for sale, in very small pieces, to any individual, every day through an open exchange. These companies have gone through an IPO (Initial Public Offering, discussed below) to put a percentage of their company up for purchase by the ‘public’. To ensure that the owners of these small parts of the company can see what the value of that small part is, public companies are required to report financial statements every 3 months, or every quarter, saying what happened during the 3 months last and how they did. .
You can only buy stocks or shares in a public company because they are the only companies that have part of their ownership available for sale to anyone, every day of the week. Some big name public companies are Google, Apple, GE, Coca-Cola and McDonald’s.
A stock is money (capital) that a company raises by selling shares of its ownership to the public. The total value of a stock is also known as its market capitalization, or the price of a single stock multiplied by the total number of shares outstanding. A single stock has millions of individual shares, which are tiny fractions of ownership in the corporation.
Everything You Need To Know About Trading Meme Stocks
For example, today Amazon stock consists of 477 million shares, priced at $853.42 each. That means the stock’s total value, or market cap, is $407 billion.
The stock market is the pool of all publicly traded companies in the world. As the world has become more interconnected, the global stock market has begun to move together more than ever. A crash in China causes declines in Europe and the US. Great Britain’s decision to leave the EU causes panic in American markets. If you choose to own individual stocks, you could very well see your holdings drop by 20% because of something that happened halfway around the world.
Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). When you see pictures of hordes of people trading stocks and commodities, it’s likely the NYSE. NASDAQ was the first electronic stock exchange where investors could buy and sell stocks.
The NYSE was founded in 1792 with 24 brokers (people who match buyers with sellers) and dealers as a place to buy and sell stocks. Before this development, brokers would meet informally to trade stocks. The growth of the NYSE and other exchanges allowed regulation to develop to protect consumers. With official exchange brokers, consumers could be sure they were buying legitimate shares of a company and for the correct market price.
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Today, instead of thousands of men shouting at each other on a trading floor, most stocks are traded electronically. In the split second you press the BUY button, computer systems match you with someone who presses the SELL button and the transaction takes place at the current stock price.
Outside of the first time companies offer shares of their stock, you are not buying stock or selling stock in the actual company. Instead, you are transacting with another individual. Most large companies have shares that trade almost constantly, which means that when you want to buy or sell, there is likely to be a seller or buyer that the exchange can quickly match you with.
An IPO, or initial public offering, is the first time a company offers shares of ownership to the public through open exchanges. This happens when a large private company, for example, Snap Inc (the company that owns SnapChat), has an owner who wants to sell some of his or her company property to raise money.
There are two main reasons that companies IPO. The first is that the company needs money to grow, and the second is that the owners want to diversify some of their investments or give themselves a greater ability to sell in the future.
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Perhaps the most common reason you see a company IPO is that they need capital to grow the business. They need a new manufacturing plant, or to invest in a new technology, and the owners are willing to sell some of their shares to the public to get the money the business needs.
In this case, even though the owners are reducing the percentage of the business they own, they do not personally receive much, if any, money from the IPO process.
Alternatively, if a private company is doing well and the owner believes the public may be interested in buying a piece of the company, they may sell part of the business to diversify their investments. The owner has the option to offer only part of the ownership to the public, say 45%, so that they retain full control regardless of who comes out and buys their shares. This allows the owner to get some cash out of the business, puts a real, trackable value on their remaining ownership, and allows the owners a path to sell more shares in the future.
Sometimes, you see private companies go public when the founder of the business is aging and wants a clear way to pass on value to his or her children. The founder can give each child a percentage of the business he or she owns after the IPO, and if they want to sell, they can do so on the open market.
How To Know What Stocks To Buy: What To Look At When Buying Stocks?
With the advent of the Internet and e-commerce, there are many opportunities for individuals to buy stocks without a human intermediary. Today, you need an online brokerage account that is designed to buy and sell individual stocks. You want to look for sites with low transaction fees if you’re going to be trading regularly (I don’t highly recommend this – see point 10 below). Sites like E-Trade, Fidelity, Vanguard and many others offer online brokerage accounts.
When you go to buy or sell stocks, there are more options available than buy now and sell now. Below are some details on what the order type choices mean when viewing your account online. A representative at your online brokerage can also help you with any questions.
A stock’s value, or its total market capitalization, is a representation of what investors believe the business’s equity is worth. Equity is an accounting term for the value left to owners after deducting liabilities (bills, debt) from assets (cash, property). The complicating factor is that the accounting version of equity does not take into account how well the company’s assets generate profit. A million dollar house generates no profit at all, but a million dollar parking garage can generate millions in profit. An accountant values both as $1 million assets, but an investor may be willing to pay more than $1 million for the parking garage to take advantage of the profits.
To compensate for this, investors use a variety of earnings metrics to decide how much to pay for a piece of ownership in a company. This is mainly done with reports, to make it easier to compare companies of different sizes and companies in different industries.
What Is Strike Price In Options Trading? Everything You Need To Know
There is a common assumption that the market is “efficient”. But the truth is that this applies only to
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