Stock Market Basics

When you are involved in buying and selling of shares in the stock market there are some Stock Market Basics, which you need to know before you start. In case you want to get involved in online trading you need to know little more than just low buying and high selling. Trade means buying and selling in the financial markets. It’s a mystery how a system is able to accommodate trading of 1 billion shares in one day. This is the reason why these financial markets are so efficient in technology. One needs to also know all the technical details along with the basics on how to buy as well as sell stocks. Given below are some Stock Market Basics.

·        Stock: Ownership in a company is known as stock.

·        Stock Price: It is the price at which a particular stock is sold.

·        Underwriter: Investment bankers are hired by companies to sell their stocks, this process is referred as Underwriting and the person hired to do the work is an underwriter. There are five ways involved in the underwriting process.

o   Arrangement for all or none

o   Best effort arrangement

o   Firm commitment

o   Negotiated underwriting

o   Competitive bids from investment bankers

·        Broker-Dealer: Person who facilitates and helps trading between customers is known as a broker. He is not responsible for any risk which maybe involved in trading. On other hand person who trades for his securities as well as securities of other people is a dealer. He is liable for some risk during trading.

·        Prospectus: A legal document with financial details about the company who is offering is known as a prospectus. It includes offer price along with the other costs.

·        Market Capitalization: Is the stock value that is offered, the product value of the outstanding shares and the stock price.

·        Stock Market Index: Means to measure the stock market, as a whole is the stock market index. To measure the portfolio performance large number of indices is combined.

·        Bull Market: When there are more sellers and less buyers it is known as bull market.

Once the company decides on selling the stocks, first thing is to get file registration statements with the SEC and wait for at least 20 days before the stocks are sold. Final prospectus, which has the offer price, is brought while issuing the stocks. The underwriter buys entire company stocks to sell it in public. Underwriter is the person who decides the offering mark up price. During the waiting period of 20 days these stocks can be advertised. In order to do share trading, you are required to have an investment account and you need a stockbroker for this. Online trading does not require stockbrokers. Prices of shares rise when business makes good money, similarly, if there are loss in business the prices of the shares fall. Buyers as well as sellers keep a close watch on the business of the company. Depending on the financial situation they decide the time to buy or sell shares.