Understanding the Stock Market

by Charlotte Wood
(last updated February 21, 2009)

You always hear about the Dow Jones or the NASDAQ, see movies with stock brokers running around like crazy on Wall Street, and see the mass of letters and numbers on the finance page of the paper. What does this all mean? Understanding the stock market may seem daunting, but if you can grasp the basics, then you're well on your way toward understanding the rest of the stock market world. You really only need to understand two things: the concept of investment and the definition of stocks.

An investment is any amount of money put toward something else. That can be an investment in a company (like what we're talking about here) or an investment in a good pair of shoes. When you invest your money, you apply it toward something and hope to get something more in return, whether that be more money, quality, or satisfaction in a product.

With stocks and the stock market, you invest money for money's sake. You put your money in a company you think looks promising and then hope that that company goes up in value, giving your invested money more value. If, however, your chosen company doesn't perform as you expected you can always sell your stock to avoid further loss.

A stock share is a piece of a company. When a company "goes public," that means they're allowing anyone to buy stock in their company. It's more complicated up in the rules of corporate law, but to you as an investor, all you need to know is when you purchase a stock, you're essentially buying a piece of the company. With thousands of investors, a business then has a boatload of money they can use to improve their company. With this money they can try new ideas and invest themselves in other business ventures. Your return is then calculated on the current value of the company.

You do take a risk, however, when investing your money in stocks. Should your chosen company tank (whether that be just financially or a headline corporate scandal) you'll probably lose money on your investment. How far you're willing to go to take a risk should factor heavily into what kind of stock you choose to invest your money in.

See, the basics of the stock market really aren't so confusing. Should you wish to really delve into the stock market, you'll need to do further research, but hopefully this piqued your interest and can get you started on your life as an investor!

Author Bio

Charlotte Wood

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