Basics Of The Stock Market

May 6, 2018 by Kornum Burnham

Within this article we will examine the key characteristics of the stock market. Stocks are traded either on a market (a physical location) or over the counter (OTC) between agents through computers. Shares of smaller companies, many bonds, and mutual funds are typically traded OTC. Normally the stocks of larger companies are traded on stock exchanges. The greatest and most well-known stock market is that the New York Stock Exchange (www.nyse.com). Many nations throughout the world also have their own stock trades.

Stocks and bonds are bought and sold through agents who receive a commission on each securities transaction. The stock and bond markets are heavily regulated. From Wall Street is the U.S. Securities & Exchange Commission (www.sec.gov).

Another important topic to get an comprehension of the stock exchange is learning about the Dow. You might have heard the phrase “How did the market do today?” The “market” in this context is generally in reference to this Dow Jones Industrial Average and is well known only as “The “Dow. So what is the Dow? It’s an index (set of stocks) reflecting the worth of the 30 largest public companies in the U.S., including IBM, Exxon Mobil, etc.. The Dow was formed by Charles Dow and Edward Jones several years ago. It acts as a barometer of the condition of the economy. The Dow (along with the value of stocks) are influenced by investors’ psychological factors (such as investor confidence), economic and political events, wars, and disasters.

There are different indexes aside from the Dow. Examples would be the Standard & Poors (“S&P 500), Russell 2000, NYSE Composite, etc.. Are there so many? The indexes are groups of stocks that behave as performance benchmarks for money managers, such as those who manage mutual funds. Mutual funds may have portfolios of big company stocks, small company stocks or a combination. If a mutual fund’s investment objective is to purchase smaller sized companies, the fund manager would not utilize the Dow as a reference but another index, since the Dow is an index of large company stocks.