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This month, Young Americans Bank wants to help you “take a walk on Wall Street” by explaining the basics of investing and the stock market. Let the tour begin!
What is a stock?
Stocks are shares of ownership of companies. These shares are sold to the public in markets around the world. The largest stock markets in the United Sates are the NYSE American, the Nasdaq Stock Market and the New York Stock Exchange (NYSE). Because these exchanges are located or headquartered on a street called Wall Street in New York, the term “Wall Street” has also come to mean financial markets in the United States.
You can purchase a stock without going to Wall Street. Many electronic methods exist that allow people to buy stocks without talking directly to a person. One method brokerage firms use is to allow people to buy stock with computers using the Internet. It allows people to make trades quickly and inexpensively.
How do you make money in the stock market?
When you purchase a stock, you are investing in a business. Put another way, you are taking a risk that the business will do well. If the business succeeds, you will make money. But, many people have lost money by buying stocks when the prices were high and selling them after prices fell. The prices of stocks rise and fall, depending upon economic conditions and business success. The important thing to remember is that there is risk in the stock market. It is not a sure way of making money.
If buying a stock is risky, why do people buy stocks?
Millions of people invest in the stock market through something called mutual funds. When you purchase a mutual fund, you actually purchase a collection of stocks that is managed by a professional. This makes your investment less risky because the value is not dependent on a single stock. There is still risk, but the risk is less.
Does the stock market make the economy grow?
The stock market is a very small part of out economy. It cannot cause the economy to grow or shrink. It is one indicator of the economy, so when the stock market goes up it does signal that many people think the economy will grow in the near future. Sometimes they are right, and sometimes they are wrong. The stock market cannot make people and companies in the economy improve their production of real goods and services.
How much does it cost to buy a stock?
The prices of stocks on the stock market change as supply and demand for stocks change. They can change at any rate, or prices can stay the same for a long time. How much they move up or down does not forecast how far they may fall. Over the long term, stocks have appreciated by 9 percent.
Bears, bulls, and pigs–what do these terms mean in relation to the stock market?
These names refer to people and their attitudes toward the stock market performance. Bulls are people who think the market will continue to rise; Bears think stock prices are very likely to fall; Pigs are people who try to make a big killing on the market in a short time and tend to get “slaughtered” -in other words, they lose all their money on high-risk investments.
Since the stock market has been around so long, are there any good stocks left?
All “good” stocks are available for sale in large quantities. Just because someone currently owns them does not prevent investors from buying the stocks. The new investor must offer a price attractive enough so the current owners have an incentive to sell their stocks.
Now, want to see how much you’ve learned?
Take our Stock Market IQ quiz! Thanks for joining us for a walk down Wall Street!