The Stock Market- A "How To" Guide

Before we look at how to buy and sell stocks in the stock market, let's look at what we already know:

Stocks represent ownership in a company. This is why it is called equity security.
Companies have to weigh the cost and benefits of issuing both equity and debt securities. Selling more stock divides ownership into more pieces while issuing bonds means they have to pay the money back. Both alternatives allow companies to buy the capital improvements they need to grow the business.
Stock ownership allows your money to grow in two ways: Appreciation in the value of the stock, i.e. the price of the stock increases and you sell for a profit; and dividends which are the profits of the company distributed to the shareholders.
Stocks (as well as bonds) are traded on both a primary (straight from the company) and a secondary market. The Stock Market that we refer to is the secondary market where owners of previously issued stock buy and sell the stock they own.
The primary market is where stocks and bonds are traded for the first time. Therefore, investors are not buying and selling securities from each other (like on the secondary market) but buying directly from the banks responsible for underwriting the initial public offering (IPO) of the company that decided to go public and issue stock.
The U.S. stock market consists of three major exchanges: the New York Stock Exchange, the American Stock Exchange, and NASDAQ. A stock can be listed on only one of these exchanges. Publicly held companies that are not listed on one of these exchanges are considered OTC, which stands for "over the counter."
Access to each of the exchanges comes through a broker. Full-service stockbrokers give advice and help a client manage their investments as well as execute stock sales and purchases. Discount brokers mainly just handle the transactions for a customer. Online brokers allow stockholders to issue orders for buying and selling stock, which are carried out by the brokerage house.
Three stock indexes provide information about the movement of stocks in general in the market on a daily basis: the DOW Jones Industrial Average, the Standard and Poor's 500 Index, and the NASDAQ Index.

With this information reviewed, let's take a look at how to buy a stock.

When you put an order to your broker, you can choose how long the order stays open. By default, orders are day orders, meaning that they are valid until the end of the trading day. Good-'til-canceled orders remain open until you actually go in and cancel them.

Self-Assessment

Check what you know about placing stock orders with this activity.

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