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Online Trading
Learn about: The Stock Market, Trading Online, Ira Online, Trading Stocks Online...
Learning the Stock Market
Self Directed Study
A simple plan to help guide you through the obstacles. This page was written after having spent over 10 years learning how it all
works, after those who knew wouldn't tell me.
The fresher the fish the better the price at the market. The "stock market" is just that- a huge "market" where stocks are traded by
many different vendors. Similar to the way other things are traded- like fish or vegetables at the old-world market, or cows at the
cattle auctions- stocks are traded "at auction".
Self Directed Study
A simple plan to help guide you through the obstacles. This page was written after having spent over 10 years learning how it all
works, after those who knew wouldn't tell me.
The fresher the fish the better the price at the market. The "stock market" is just that- a huge "market" where stocks are traded by
many different vendors. Similar to the way other things are traded- like fish or vegetables at the old-world market, or cows at the
cattle auctions- stocks are traded "at auction".
Prices are determined by supply and demand- by sellers and buyers willingness to buy or sell at a
certain price. As demand goes up, the price goes up, and so on.
Imagine, over 100 years ago, brokers literally shouting "I have 100 shares of Pacific Railroad for
sale, how much will you offer me?" If a broker had an order to buy some stock he would shout
"Someone sell me 100 shares of Pacific Railroad! Who has the best price?" You've probably seen
some of that happening- in more modern times- in film clips of the Chicago Board of Trade where
wheat, corn and pork bellies are bought and sold. Market trading is more organized now.
Computers do the shouting.
Brokers arrange for the actual trades (isn't "broker" a funny name for someone that handles your
money). A broker is someone who who sells stocks for a dealer. Charles Schwab is a dealer. The
dealer holds inventories of stocks and sells them through the sales guy. The sales guy is the broker
or the specialist. If a sell order comes across the computer at an attractive price, the dealer buys
(through his agent, the specialist) , and adds this stock to his inventory. The brokers, and
specialists, using computers, bring the dealers and investors together.
What makes the price of a stock change? Companies are expected to earn profit. If profits increase,
the stock price will likely
increase. Even if investors think the earnings will increase, the stock price may go up. If good news
comes out on a company, the price, and demand for the stock may go up. With bad news, the price
and demand may go down. The price of a stock is even more dramatically affected when supply is
very high or very low. It is not so uncommon for certain unscrupulous individuals to "create" news or
other financial information, for the purpose of duping unsavy investors into creating a demand
situation, into which, the unscrupulous-one "sells into" and makes an unfair profit. Investors beware.
There are several different prices:
Opening Price is the first price paid after trading starts, usually when the stock exchange "opens its
trading doors", usually in the morning. Sometimes, opening price is higher or lower than the closing
price of the previous day (orders are placed overnight, and after stacking up, affect the demand- and,
thus, the opening price.
Closing Price is opposite- its the price of a stock when the market closes- the price "at the close".
Ask price is the price you will pay for a stock (and is slightly more than the trading price because it
includes a dealer "commission").
Bid price is what the broker, or agent, will buy your stock for (and is slightly less than the trading
price because it includes a dealer "commission").
Spread is the difference between the bid price and the ask price.
If many buy orders come through the specialist, the price for the stock will be increased. If many sell
orders come across the desk, the price will go down. Supply and demand drives stock prices. Lots
of orders reduces the spread- thinly traded stocks have a higher spread.
Three Different Stock Exchanges:
There are several organized "exchanges" in the US that make up the stock market. They are the New
York Stock Exchange (NYSE), the National Association of Security Dealers Automated Quotes
(NASDAQ), and the American Stock Exchange (AMEX). For a company's stock to to be "listed", or
traded on a particular exchange, it must meet that exchange's requirements of profit, size,
employees and the like.
certain price. As demand goes up, the price goes up, and so on.
Imagine, over 100 years ago, brokers literally shouting "I have 100 shares of Pacific Railroad for
sale, how much will you offer me?" If a broker had an order to buy some stock he would shout
"Someone sell me 100 shares of Pacific Railroad! Who has the best price?" You've probably seen
some of that happening- in more modern times- in film clips of the Chicago Board of Trade where
wheat, corn and pork bellies are bought and sold. Market trading is more organized now.
Computers do the shouting.
Brokers arrange for the actual trades (isn't "broker" a funny name for someone that handles your
money). A broker is someone who who sells stocks for a dealer. Charles Schwab is a dealer. The
dealer holds inventories of stocks and sells them through the sales guy. The sales guy is the broker
or the specialist. If a sell order comes across the computer at an attractive price, the dealer buys
(through his agent, the specialist) , and adds this stock to his inventory. The brokers, and
specialists, using computers, bring the dealers and investors together.
What makes the price of a stock change? Companies are expected to earn profit. If profits increase,
the stock price will likely
increase. Even if investors think the earnings will increase, the stock price may go up. If good news
comes out on a company, the price, and demand for the stock may go up. With bad news, the price
and demand may go down. The price of a stock is even more dramatically affected when supply is
very high or very low. It is not so uncommon for certain unscrupulous individuals to "create" news or
other financial information, for the purpose of duping unsavy investors into creating a demand
situation, into which, the unscrupulous-one "sells into" and makes an unfair profit. Investors beware.
There are several different prices:
Opening Price is the first price paid after trading starts, usually when the stock exchange "opens its
trading doors", usually in the morning. Sometimes, opening price is higher or lower than the closing
price of the previous day (orders are placed overnight, and after stacking up, affect the demand- and,
thus, the opening price.
Closing Price is opposite- its the price of a stock when the market closes- the price "at the close".
Ask price is the price you will pay for a stock (and is slightly more than the trading price because it
includes a dealer "commission").
Bid price is what the broker, or agent, will buy your stock for (and is slightly less than the trading
price because it includes a dealer "commission").
Spread is the difference between the bid price and the ask price.
If many buy orders come through the specialist, the price for the stock will be increased. If many sell
orders come across the desk, the price will go down. Supply and demand drives stock prices. Lots
of orders reduces the spread- thinly traded stocks have a higher spread.
Three Different Stock Exchanges:
There are several organized "exchanges" in the US that make up the stock market. They are the New
York Stock Exchange (NYSE), the National Association of Security Dealers Automated Quotes
(NASDAQ), and the American Stock Exchange (AMEX). For a company's stock to to be "listed", or
traded on a particular exchange, it must meet that exchange's requirements of profit, size,
employees and the like.
Penny Stocks?
stock from you?? Penny stock is rather like Ostridge meat- it may be a good product, but there is no market (demand) for it. The best
stock from you?? Penny stock is rather like Ostridge meat- it may be a good product, but there is no market (demand) for it. The best
fishermen sell the best fish.
fishermen sell the best fish.
Teach Yourself:
One of the best investments you can make, up front, is to learn the lingo of the market. Reading articles written by professional
analysts and experts will be worth more in the long-run than just jumping in the market willie-nilly. Get some general information
about the investment climate, market momentum and direction (up or down) before you invest. . Believe me, this will be of more
value than an e-trading account if you don't know what your doing, or why your doing it.
Suggested Reading:
Basic Stock Information to Get You Started
When and How to Sell a Winning Stock
The Cheapest Stock Around
Learning the Stock Market
stock from you?? Penny stock is rather like Ostridge meat- it may be a good product, but there is no market (demand) for it. The best
stock from you?? Penny stock is rather like Ostridge meat- it may be a good product, but there is no market (demand) for it. The best
fishermen sell the best fish.
fishermen sell the best fish.
Teach Yourself:
One of the best investments you can make, up front, is to learn the lingo of the market. Reading articles written by professional
analysts and experts will be worth more in the long-run than just jumping in the market willie-nilly. Get some general information
about the investment climate, market momentum and direction (up or down) before you invest. . Believe me, this will be of more
value than an e-trading account if you don't know what your doing, or why your doing it.
Suggested Reading:
Basic Stock Information to Get You Started
When and How to Sell a Winning Stock
The Cheapest Stock Around
Learning the Stock Market