Understanding the Stock Market

Written 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

MORE FROM CHARLOTTE

Basic Sedu Hairstyles

Sedu hair styling may sound intimidating at first, but it's really not that difficult. Start out with these basic Sedu ...

Discover More

Effective Debt Counseling

Debt counseling can be a great way to plan your way out of debt and pave your road toward financial freedom. You just ...

Discover More

Why Interest Matters

Debt is pretty much an accepted part of today's world and if you don't consider all the aspects of it, you'll be in ...

Discover More
More Money Tips

What is a Bear Market?

In the financial section of the papers or in news magazines you can easily come across the phrases "bull market" and ...

Discover More

Stock Market for Beginners

If you have never worked with it before, the stock market isn't exactly the best of places for beginners. That is, unless ...

Discover More

Understanding Puts and Calls

Puts and calls may sound confusing but really they're just one more facet of that sometimes overwhelming world of ...

Discover More
Comments

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] (all 7 characters, in the sequence shown) in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is two minus 1?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)