What is the Stock Market?

Every day you watch the news, read the paper, and see constant indicators indicating growth or loss in regards to the Stock Market.The entire political scene is plastered with buzz words about Main Street versus Wall Street.So isn't now the time to figure out what exactly the Stock Market is and how it all works?

To get started we need to first take a look at some definitions.These definitions will help in understanding the basics of the Stock Market and how it works.

Stock: Stock simply means you have a supply of something, whether you have a stock of crayons in your craft box or a stock of shoes in your closet, you have a supply.Stock in reference to the Stock Market is the supply of money a company is able to raise.

Market: The market is simply the location where things are bought and sold.When we reference the Stock Market there isn't necessarily one specific physical space we can identify.The Stock Market is simply the buying and selling of stock, however, we most commonly reference the location as "Wall Street".

Dividends: Dividends are payments made to share holders (stock holders) from companies.These are usually handled as cash payments, store credits, or additional shares or stock in the company.

Primary Market:The primary market is where new public offerings are being traded between buyers and sellers.

Secondary Market: The secondary market is where previously launched stocks are traded between buyers and sellers.

New York Stock Exchange (NYSE):The NYSE is physically located on Wall Street and is the world's largest stock exchange.It is operated under a continuous auction format, where brokers execute transactions on behalf of their investors.As of 2007 a new Hybrid Market was created to allow for electronic transfers to take place.

DOW: This is one of several stock market indicators used to assess how well the stock market is doing.The DOW (Dow Jones Industrial Average) provides and index showing how 30 large publicly traded companies are doing for a specific trading period.

NASDAQ Composite:This is another of the stock market indicators.This index includes both U.S. and Non - U.S. companies.It provides an index of common stocks and securities for technology and growth companies.

S&P 500: This is another stock market indicator.The S&P 500 is a free-float capitalization-weighted index.It looks at the top 500 large-cap common stocks being traded in the United States.This indicator is considered to be second only to the DOW.

Bear Markets: The term bear markets refer to exchanges that appear to be experiencing a decline over time.These are markets most people fear or are pessimistic about since they tend to show a loss in dividends.

Bull Markets: The term bull markets refer to exchanges that are associated with positive investor confidence. They show promise and a win-win situation for everyone.
Now that we have a better grasp of some of the terms we see floating around us all the time let's take a quick look at how it all works.

Business Corporations that are looking to grow without having to borrow money look to issuing stocks. Stocks provide a revenue stream to help corporations build factories, hire additional labor, etc. Investors buy the stock because they hope the companies that they purchase stock from will become successful and make profits. When investors purchase stock they are purchasing a percentage of the company itself. These profits then in time are paid out as dividends. People choose to invest because good investments in the market usually yield better percentages than keeping money in a bank. As companies become successful the price of their stock rises. Prices that fall are indicators that a corporation may be having difficulties. Prices fluctuate up and down within a reasonable limit daily.