Stock Market Definition: Day Trading Terminology
The Stock Market, also known as the equity market, is an auction-based market where shares of public companies trade through exchanges between market participants. It gives public companies the chance to access additional capital by allowing investors to buy shares in return for ownership of the company based on the amount of shares the investor buys. There are thousands of stocks trading everyday in the stock market so choosing the right one can be a tough decision.
If investors make good picks they will be rewarded with the appreciation of their stock when the company does well and share prices increase and/or through the payments of dividends. However, companies don’t always do well and stock prices can go down by a lot when companies fail to meet expectations, which is why it is always prudent to do some research on the companies you are investing in.
How The Stock Market Works
There are two main components to the stock market including the primary and secondary markets. The primary market is where companies first issue shares of their company through what’s called an initial public offering (IPO). This is generally where large institutional investors and investment banks purchase shares of the company at IPO prices before they are offered on the secondary market where everyone else participates in the open market.
When the Stock Market first started, trades were executed via paper tickets and the buyer would receive actual stock certificates of the company they purchased, but as times changed and technology has advanced, the market has gone mostly digital with trades being executed electronically and at a much faster speed. This has improved the accessibility of the markets to retail traders as anyone who has a computer with internet can now place trades from the comfort of their home.
Some of the major indices traders follow in the Stock Market are the Dow Jones Industrial Average (DJIA), the S&P 500, the NASDAQ index and the Russell 2000. The DJIA consists of 30 stocks that trade on the New York Stock Exchange and on the NASDAQ that mainly consists of blue-chip companies. This is one of the oldest indices that traders still watch.
The S&P 500 is one of the most complete indices in the Stock Market as it follows 500 public companies and gives a greater view of the overall market compared to the DJIA while the NASDAQ composite index tracks around 3,000 different companies on the NASDAQ stock exchange. The Russell 2000 follows small-cap stocks with roughly 2,000 companies in the index.
Warrior Trading Pro Stock Market Tip
Whether you’re a long term investor or an active trader, the stock market is a place where you can make and lose a lot of money. Understanding how to assess risk and manage your capital is one of the biggest hurdles for new traders to understand, so make sure to educate yourself and find a mentor who can help guide you as you are learning the ropes. The stock market can be very unforgiving so it’s best to start off slow and with small size.