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The Stock Market a Simple Guide

By: Dave Chandler

The stock market is a place where you can buy and sell stocks and shares. The term "stock market" refers to an organized trading of securities. A security is a contract that is assigned a value and then traded. The stock market is one of the most important areas of the market economy because it provides company's access to capitol and investors. In return the companies give their investors a chance of gains or profit based on their future financial successes. There are three main stock markets in the United States, also known as stock exchanges.

The first is the NASDAQ, opened in 1971, and was the 1st stock exchange to trade electronically anywhere in the world. The National Association Of Security Dealers Automated Quotation or NASDAQU is a virtual stock exchange; there is no actual place where you can see dealers. It's a network of computers all connected together.

The second is the New York Stock Exchange or NYSE. The NYSE corporation is managed and run by a group of directors who are responsible for over seeing their members activity, setting of policies and listing the securities to be traded. The NYSE is unusual as it has "Floor Traders" to make the trades rather than computers as in other exchanges.

Last but not least is the AMEX Stock Market also known as the American stock exchange. The AMEX exchange processes around 10% of the total securities traded in the USA making it the 3rd largest.

The stock market also issues and trades stocks and shares through OTC, over the counter markets, also known as the equity market. The OTC markets most commonly list small companies and their stocks. Companies that have been dropped by the NASDAQ stock market due to instability within the company and their stocks can often be found at the OTC markets. There are two OTC markets; the first is the OTCBB, which stands for Over The Counter Bulletin Board and Pink Sheets.

These markets give the opportunity to investors to own shares in publicly traded companies. They provide 2 ways to profit from the markets; through dividends or capitol gains.

Capital gain means that there is an increase in the companies' capital assets, such as an increase in their real estate value or an investment they have made. Thus in return gives them a higher worth than their original purchase price within the stock market. This will make the value of each share increase including the share or shares that you have bought.

The payment of a part of the company's earnings is called a dividend. The board of directors make the decision which shares the dividend is paid on; rewarding these investors for risking their money. The dividend can be paid either in cash, property or stock.

The stock market will allow you the shareholder of a companies' stock to become one of the many owners of a particular company. Being one of the shareholders of a particular company, allows you to have a claim on everything the company owns. An owner or shareholder is entitled to a share of the companies' earnings along with voting rights within the company if the stock you've bought through the stock market has attached voting rights. As you acquire a larger amount of stocks on a particular company through the stock market, your ownership in the company is increased along with your profit potential.

There are two types of shares that you can purchase from a company through the stock market. The first is the common share and the second is the preferred share. The common share, also known as a common stock is at the bottom of a company's priority ladder. If the company your invested in through the stock market becomes bankrupt or needs to liquidate their assets, you will not receive any money for your stock until the creditors and preferred shareholders receive theirs. However if you purchase a preferred share through the stock market, also known as a preferred stock, you have top priority to receive money if a company becomes bankrupt or has to liquidate its assets. The downfall to buying a preferred stock through the stock market is that you will not be given any voting rights to a company, which means that you have no say in how the company may conduct business.

Trying to understand the stock market appears to be extremely difficult and yes it does take some time to understand. If you break the aspects of the stock market down into sections and study them one at a time you just may find its not as complicated as it may seem. The stock market can be complicated but if you're a beginner just take it one step at a time it really isn't as difficult as it appears.

Article Source: http://www.articlesinsight.com

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