Investing For Beginners: What is the Stock Market?

stocks Sep 10, 2019

Investing For Beginners: What is the Stock Market?

What is the Stock Market?

Stock Market Definition

The "Stock Market" usually refers to one of the major market indexes such as the Nasdaq, S&P500, or the Dow Jones Industrial Average. These indexes are used as standard benchmarks for the performance of the underlying stocks that make up the indexes. As an example, we've listed the SPDR S&P500 ETF TRUST below.

SPDR S&P500 ETF TRUST

 

Market Functions

The Stock Market serves one of the most important functions in our modern society. Financial markets facilitate growth by allowing a place where free trade can occur. Institutions and people all over the world use financial markets to connect, invest, hedge, and speculate.

How does the Stock Market work?

The Stock Market works on a global network of exchanges. These exchanges allow companies to list their shares to be traded.

This is called an IPO(Initial Public Offering). When a business goes public and has an IPO, Institutions and Investors alike purchase the shares of the company.

This process supplies significant operating capital to businesses for growth and expansion. Investors and Institutions are happy to purchase shares, as this allows them to grow along with the company.

How can you invest in the Stock Market?

The good news is that anyone can invest! All you need is a brokerage account and a small amount of capital and you can start trading today.

Brokers act as middlemen between clients and the exchanges. There are many different brokers to choose from. Once you decide on one that you like, you can go online to open and fund an account.

Once your account is open and funded you are ready to trade the markets! With any investment in the markets, there comes risk. As you grow and experience more market conditions you will understand and appreciate risk much more.

What types of investments do the markets offer?

I'm going to step back and take a very macro approach to this section. As the blog continues to grow I will get deeper and deeper in to investing and the many different ways we use these amazing instruments.

If we step back and take a look at what FINRA says about investments, we can see that we have a lot of choices:

  1. Stocks
  2. Bonds
  3. Investment Funds
  4. Bank Products
  5. Options
  6. Annuities
  7. Retirement
  8. Saving for Education
  9. Alternative and Complex Products
  10. Initial Coin Offerings and Cryptocurrencies
  11. Commodity Futures
  12. Security Futures
  13. Insurance

Conclusion

As you can see, we have so many choices! This makes it very exciting, but also intimidating for new investors. Don't worry though, there is light at the end of the tunnel, I PROMISE!

We first have to have a plan of attack. Part of that plan is educating ourselves on all of our different options and then deciding on a goal. As we dig deeper in to the different strategies that Stocks, Options, and Futures give us, we will be able to see that goal more clearly.

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