Financial Zip

When you think of the stock market, especially these days we recoil with fear and loathing. Most people are intimidated by the stock market and really don’t understand how it works. Not to mention it has the ability to ruin a portfolio at the drop of a corporate hat.

Before we get to know the stock market you have to understand the economy. The economy is really like a living breathing thing. In fact you can equate it to a child in many ways. It has fits and tantrums. It also has growth spurts, it gets sick. That is the economy reacting to things that are going on in business. Business fuels the economy. Business make things, trades things, sells things. We as consumers we buy things, consume things, sell things as well. So we all contribute to the health of the economy.

The doctors that evaluate the economy are economists. Economists cannot agree among themselves for the most part. They have different views on what can help the economy. Some might think it needs an energy boost so they feel it needs a shot of adrenaline that will increase growth. But the economist next store says, “No, No, No it this, the problem is it has a cold we have to give it some tranquilizers to slow it down.

The fact is the economy is so dramatic. If some one says the “R” word (recession) the sky is falling. Then again when the economy is growing it looks like it could grow forever. So the Economy is a little mellow dramatic in that sense

The stock market is really a convex mirror that reflects what the economy is doing. It reflects and magnifies the imperfections in the economy. As we have seen in the last 6 months the economy has been pretty bad. Not bad, bad but the stock market every day is moving way down on bad news and way up on good news. So the stock market is a reflection of what is going on in the economy

Supply and Demand

Securities are traded every day. A security is essentially a contract that can be assigned a value and traded. Examples of a security include a note, stock, preferred share, bond, debenture, option, future, swap, right, warrant, or virtually any other financial asset.

So securities trade on supply and demand. Companies release a fixed amount of stock. You can’t get more or less unless the company releases more. So the price of a stock is influenced by supply and demand. If you see a stock soaring generally there is a high demand for it. It could be for various reasons. The company has come out with a new product. There are rumors about new acquisitions. There are a lot of reasons for the stock to go up.

Now the opposite can happen. Demand subsides and the price of the stock drops. So people are now selling. That means that there is a lot of company A’s stock or there is now a large supply of that stock. S

Understand that supply and demand is a part of trading stock in the stock market. It’s all about what stock I want and what price someone is willing to give me for that stock.

The Dow

Probably the most influential market place on earth is the New York Stock Exchange. There are others the American Stock Exchange, the NASDAQ, The Chicago Mercantile Exchange etc… It is the New York Stock exchange where a lot of stocks are traded. Some one might say on the news, “The market ws up today” they are not referring to economy but and index the Dow Jones Industrial Average.

“The Dow” as it is called is 30 of the largest companies in the United States. It still has the word industrials in it because when it was created by Charles Dow the biggest companies where industrial companies. Today it includes companies like Microsoft, GE, MacDonalds.

The Dow is important because these big companies represent a big cross-section of the economy. The Dow simply measures the pulse of the economy and how it is doing. It is important to see what direction it is going. It can give you an early look at whether or not the economy is growing or tanking.

The Bulls and Bears

There is lots of terminology associated with learning the stock market. One thing you might here often is the terms Bulls and Bears.

A bull market is when the economy is in a state of growth, every body has jobs, the GDP (gross domestic product) is advancing, and 3 out of every 4 stocks is seems to be growing. This is called a bull market. You are a bull if your outlook on the economy and especially the stock market is rosy. The thing to remember is that the bull markets do not last forever.

Bear markets are obviously the opposite. Bear markets just kind of lumber a long like a bear walking through the forest. Bear markets are when the economy is contracting and the outlook is just down right, well down. Remember here though that the economy has always grown. Stocks have continued to grow over the 75 years or so the stock market has been in existence.

Being a bull or bear really comes down to attitude. So the question you want to ask yourself are you a bull or a bear?

Investing in at the Stock Market
This is really a broad and advanced topic and I will only mention this. The stock market is full of risk. The risk you could lose your money. So the thing that you want to do is decide how risky are you. Every one generally lands between conservative and speculative. You have to decide your risk exposure.

Conclusions

There is a lot to understand about the stock market. This stock market basics series is all about giving you some good educational information on what the stock market is all about and how to invest. If you are looking to invest it is generally good to seek some professional advice or at least research all that is involved in trading in the stock market.

Next: Equities (The Basics of Stocks)

Stock Market Basics
1. Understanding the Stock Market
2. Equities ( The Basics of Stocks)
3. The Fundamentals
4. Advance Fundamentals
5. Charting and Technical Analysis
6. Virtual Trading
7. Finding a Company You Like
8. Buying and Selling Stock
9. Trading Systems and How to Create One
10. Market Cycles
11. Sectors

This article is for educational purposes only. It is not to be used as specific legal, accounting, tax, insurance, or investment advice. If looking to invest in stocks seek out the advice of a broker or an investment professional.