AN INTRODUCTION TO THE STOCK MARKET
What it is, how it works, and how to get started.
Provided by Terri Fassi, CPA, MBA, CDFA
Confused or unsure? You’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:
The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock rises. If the company does poorly, the value of your stock falls. That is the stock market in the simplest terms.
The market. Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.
Exchanging? Trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.
How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.
What is a brokerage? A broker is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.
So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.
Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.
Terri Fassi may be reached at 970-416-0088 or firstname.lastname@example.org
These are the views of Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.