If you have never invested in stocks, the very idea of the stock market can seem mysterious'but it doesn't have to be. Here's a beginner's guide.
What is a stock?
A stock is a share of a company. The words stock and share are generally the same thing. When a company issues stock, it divides its ownership into small units called shares. Buying a stock means you own a share or piece of that company.
The stock market
All the activity of buying and selling stocks makes up the stock market. When people talk about the stock market being up or down, they mean that stocks in general are gaining or losing value. If the market is up, stocks are generally gaining value. But an individual stock could still be losing value, even if the overall market is up.
What is a stock exchange?
A stock exchange is a business that makes it possible for companies sell shares to raise money and allows people to buy shares in the hope that they'll be worth more later, letting them make a profit. There are more than 60 major stock exchanges globally, and over 200 if you include those that focus on specialized or regional trading.
Most important stock exchanges
In the U.S., the two primary exchanges are the New York Stock Exchange (NYSE) and Nasdaq. Other very important exchanges include the London Stock Exchange, Tokyo Stock Exchange, Shanghai Stock Exchange, Euronext, and Bombay Stock Exchange.
With all these stock exchanges around, people use stock indexes to get a snapshot view of stock value.
What is an stock index?
A stock index is like a report card for a group of stocks. An index tracks the value of selected companies to give an idea of the market's health. Some of the most famous U.S. indexes are:
* Dow Jones Industrial Average: Tracks 30 major U.S. companies like Apple and Boeing.
* S&P 500: Follows 500 U.S. companies like Microsoft and Amazon.
* Nasdaq Composite: Covers 2,500 companies, mostly tech, like Google and Tesla.
When the Dow is up, it means that the 30 companies it tracks generally increased in value. It gives you an idea about the health of the market generally.
