| First of all, a "stock" refers to a share of ownership | | | | Alternatively, you may wish to hold on to your stock |
| in a company. Companies sell stock to raise capital. | | | | and keepit as a long-term asset, or rely on any |
| Companies that trade on stock markets are public | | | | dividend income. |
| companies that have issued stock to the general | | | | That's the theory anyway, and it virtually sums up |
| public. Each person who owns stock has a number of | | | | how many investors approach stock market |
| shares in the given company, which give them | | | | investing. They look at a range of fundamental data - |
| corresponding ownership rights. For example, they | | | | in particular financial data (e.g. sales, profits, debt |
| may be entitled to voting on major company | | | | level, growth and certain financial ratios) that relate |
| decisions and to a share of dividends (profits | | | | to a given company, and choose whether or not to |
| distributed to stockholders after the company's | | | | invest accordingly. Analyzing such data is known as |
| interest expenses and taxes are paid). Having said | | | | "fundamental analysis". |
| that, there are different kinds of shares that have | | | | People who trade stocks (as opposed to invest in |
| different types of rights attached. Most stock traded | | | | them) - "traders" - take a much shorter-term view of |
| on the stock market is comprised of "ordinary | | | | the stock market. Over the short term, the stock |
| shares" which gives you voting rights and the | | | | market may not seem all that rational, with company |
| entitlement to dividends. | | | | share prices NOT seeming to indicate value at all. |
| The "stock market" actually refers to all the stock | | | | Short term movements in stock prices are |
| exchanges where shares in companies may be | | | | effectively ruled more by the collective psychology |
| traded. When it first issues stock to the public, a | | | | of the market than corporate value. |
| company chooses the stock exchange it wishes to | | | | Traders seek to use the short term volatility of the |
| be listed on. Most companies list on one exchange, | | | | stock market to their advantage. They use "technical |
| although some very large corporations are listed on | | | | analysis" - analyzing trends and patterns in stock |
| more than one exchange. This means that you can | | | | prices - in order to spot opportunities to profit on |
| buy and sell stock in that company on each of those | | | | upward, downward and even sideways price |
| exchanges. Some of the major exchanges are the | | | | movements. |
| New York Stock Exchange, the Tokyo Stock | | | | Investors who use fundamental analysis on the one |
| Exchange and the London Stock Exchange. | | | | hand, and traders who use technical analysis on the |
| When you buy or sell stock, you need to go through | | | | other, take very different approaches to stocks. |
| a stock broker. They take a fee or commission in | | | | However, both can make money. Technical analysis |
| return for facilitating the trade. Pre-Internet you | | | | has a bit more of a mystique about it because of the |
| generally needed to call up brokers to place your | | | | "black box" nature of many of the stock trading |
| orders; now you can issue a buy or sell order by filling | | | | systems used by traders. |
| in a form on one of the numerous online brokerages. | | | | A trading system is a methodology used by traders |
| Okay, so there you have some stock trading basics | | | | to identify and capitalize on profit opportunities. Some |
| regarding the nature of stocks and the stock | | | | people sell trading systems, while many (if not most) |
| market... but how do you make money trading or | | | | professional traders keep their trading systems to |
| investing in stocks? Well, in theory, the price of each | | | | themselves. Other pro traders routinely change their |
| share is indicative of the value of the company. As | | | | trading systems where they believe that a given |
| the fortunes of the company improve, the price | | | | system has lost its effectiveness. |
| should theoretically increase, and vice versa. If you | | | | So there you have some key stock trading basics. |
| buy stock in a company believing that it will become | | | | We've barely scratched the surface of the world of |
| more successful over a given time frame, you should | | | | stock market investing and trading, but hopefully you |
| be able to sell your stock in the company when it's | | | | can already see how money can be made in stocks. |
| price has increased and make a capital gain. | | | | |