The first thing a new investor should know in learning the basics of understanding the stock market is what a “stock” is: the smallest unit of corporate ownership. The exact interest represented by a share of stock varies from one company to another, but if you own even one share of a corporation’s stock, you are considered an owner of the corporation.
Don’t worry - a primary reason for buying stock is the concept of limited liability. It is key to understanding the stock market to know that if you buy stock, your total risk is the amount you paid. If the company goes under, you lose your initial investment, but creditors can’t seek anything further from you - your other assets are completely safe.
One of the main resources you can use is your local library. They probable have guides and books available on stock trading and if they don’t, they can get it from other libraries. If you don’t have a library card, you can apply for one free of charge at your library or you can just take notes of books and go purchase them at a book store. Keep notes simple, such as stock trading strategies, how to invest your money, and where to invest it.
There are several “stock markets”, including the New York Stock Exchange, the American Stock Exchange, and the Japanese Nikkei. Each stock is registered with a certain market, and is only sold there. Each market has professional traders, called “brokers”. Typically, investors place “buy” and “sell” orders with their broker, who acts as their agent in the transactions.
Most brokerages require that you open an account with a minimum balance, which may be a significant amount. Some firms cushion that blow by offering free stock trading, meaning they won’t charge their commission on the first few transactions made for you.
The stock market is said to “move” up and down; this is based on the overall decisions of all of the investors trading in the particular market as to whether they will buy or sell particular stocks, and in what quantities. Investment decisions are based on a wide range of highly variable factors, so it is impossible to predict exactly what the market will do on any given day.
Now that you know the basics, you will need capital before you can begin. Do not use money that you can not afford to lose. If you have not saved money or have money put back to trade, try using money left after you have paid your bills or money you have made from a part-time job. This way you will not be wasting money that you can not afford to lose.
Consequently, understanding the stock market really means educating yourself about market dynamics. Even with a good grasp of the basics, you may wish to consult with a professional financial counselor for assistance in developing an investment strategy that suits your needs.