Your Neighborhood Market - the Stock Market

The stock market is a huge market. That's what it is, just a huge market where stocks (pieces of paper which represents portions of a company which may be traded as transferable certificates) are exchanged (bought or sold) with money as the bottom line exchange factor, just like in any grocery store on Main St. USA. Stocks are sold and bought in lots (100 stocks, 1000 stocks, etc...) or separately by stock.

The price of stocks is determined by Supply and Demand. This is the interplay of the quantity of products or goods offered for sale at certain price and the quantity of products or goods purchased or bought at those prices in a free market. This is a very important point, because it relates to everything you do when buying or selling. Think about selling your house now in this market... OK. Now, think about buying milk at the grocery market. It's the same market but at a different level.

Did you ever wonder why dairy products are very reasonable one week and then two weeks later the price is doubled?! This is supply and demand at work. The demand for certain product goes up, and then the price goes up. This is just like the stock market. Depending upon how good a company is producing, as in good products, showing good customer service, selling a great marketing program, the company may have a large demand and this means the price of stock will go up. If the company is favored in news releases, this will also tend to increase stock prices. This also works in the negative direction as well, where the company produces inferior products and has bad news releases about it.

Stock trading is easier than ever now with online companies like Scot trade, Schwab, etc. Trades are fast, commissions are low, training and advanced tools are at your fingertips.

EXCHANGES

Stocks are listed and traded at several organized exchanges in the United States, which make up the stock market. To be "listed" the company must meet certain criteria such as number of employees, size of company, how much profit the company makes, etc... Stocks and other securities (bonds, commodities, options...) are traded at exchanges with a physical location or on a computerized system. The reason exchanges were created was to provide a safe and fair platform where there were established rules and procedures to trade stocks and securities.

In the United States the Security and Exchange Commission (SEC) regulates the exchanges and ensures the rules and procedures are kept fair for all. There are four exchanges in the United States for trading stocks. They are:

The New York Stock Exchange (NYSE)

Chicago Board of Exchange

The American Stock Exchange

The National Association of Securities Dealers Automated Quotes (NASDAQ)

Some of the exchanges are fully automated systems which electronically match buyers to sellers of stock. You must have a buyer of stock for every seller of stock in the market. Other exchanges are what are called "Open Outcry" auction systems. If you have ever watched stock market movies such as "Trading Places" or "Wall Street", you'll know what this looks like.

This huge market has, to some degree, an effect upon everyone whether you understand or not. If you are a fund market manager or a school teacher, you're affected by prices and commodities of the market. You both may drink orange juice and buy gasoline for your cars. You both may invest in company stock, commodities, mutual funds or securities of one way or the other. The point is that everyone invests. What you buy or what you sell someway relates back to the markets. This is YOUR market as well and your neighbor's.

Your investment into your knowledge of the markets will benefit you whether it's the relationship in stocks, commodities, mutual funds or saving accounts. The more you invest in you own knowledge, the better prepared you will be.