Young professionals are
growing by the numbers. They are the new breed of talented working class with
strong purchasing power. But are they equipped to manage their personal
finances and clever enough to make sound investments?
With the affluence they carry,
it wouldn’t be surprising if they set their sights on a marketplace to grow
their money. Stories
of students hitting it big in the stock market are trending news. Whether
the stories are true or a hoax, it generates interest among this bunch to
venture into stock trading.
If you are new to the game,
allow us to share some snippets about the U.S. stock market. By simple
definition, it is the marketplace where buyers and sellers of stocks converge
to make money. However, throw in some risks then it is also the place where you
can lose your money.
U.S. STOCK EXCHANGE
The U.S. bourse is the most
dominating stock market in the world. Two major exchanges comprise this giant
marketplace: the New York Stock Exchange (NYSE) and NASDAQ. Today, the term
Wall Street no longer refer to the NYSE in particular but has expanded to mean
the financial and investment community in general.
are conducted physically on the trading floor. When the bell rings to signal the
start of trading, stock traders engage in a frantic buying and selling of
stocks. Typical in an auction, the play is about matching the highest bid price
with the lowest asking price. A designated ‘specialist’ facilitates the
tug-o-war until a negotiated price is agreed upon.
New York Stock Exchange (NYSE)
in the NYSE, trading of stocks does not happen on the trading floor.
Transactions pass through an intricate electronic network where the listed companies
are linked together. Dealers create the market for the buyers and act as brokers
for the sellers.
IS NYSE DIFFERENT FROM NASDAQ?
are public exchanges after NYSE changed its ownership from private to public in
March 2006. Each exchange has about 3,000+ plus listed companies.
trading in NYSE is typical of an auction market while
NASDAQ is a dealer’s market. The orderly flow of trading is controlled by a
dealer (market maker) on the NASDAQ side and a specialist (facilitator) in
is home to the blue-chip stocks of long standing. Stocks of Bank of
America, Ford Motor, Oracle and General Electric (GE) to name a few are the
most active stocks month-to-date.
4. On the
other hand, tech
companies and internet firms or those belonging to growth industries dominate
NASDAQ. Among the most active stocks at the midpoint of March 2017 are
Frontier Communications, Microsoft, Apple, and Facebook.
As an investor wishing to own
a piece of the pie, it doesn’t matter whether the pie is on NYSE or NASDAQ. The
important thing is you now have an idea how trading is done in each exchange.
From the types of operation,
let us move to a different exchange, the verbal exchange. Do not let stockbrokers,
traders or even investment bankers intimidate you with their sweet talk.
Learning the market lingo will project a semblance of knowledge and not appear
like a dummy.
1. Dow Jones Industrial Average: The
lead index which averages the performance of blue chip stocks
& Poor’s 500 (S & P 500): Index Another barometer of the performance of the
top 500 stocks which is an accurate representation of the stock market
3. Initial Public Offering (IPO): The
listing of a company on the exchange and its first offering of its stocks to the
per Earning Ratio (P/E Ratio): Computed by dividing the
stock price by the company’s earnings per share
Chip: or premium stocks of industry leaders and well-established
Market: Characterized by rising stock prices with positive market
Market: Gloomy market outlook with steep decline of stock prices
end of trading day with last traded stock prices posted
Trading: Official buying and selling period before the close of the
10. Dividends: Payments
to shareholders (cash or stocks) from realized profits
11. Exchange: The supermarket of
tradable equities mentioned earlier
12. Hedge: A trading strategy to
offset or minimize losses
13. Limit Order:
Specific instruction to buy or sell at a set price
14. Portfolio: The
basket of held securities or stocks for trading
15. Quote: Refers to the bid, ask
and the last price of a particular stock within the trading day
16. Rally: The brisk increase in
the price level of the entire market or a particular stock
17. Stock Symbol: The
abbreviated alphabetic symbol of a listed company on the stock exchange
18. Volatility: The
unpredictability of price movements, highs, and lows
19. Volume: The total or average volume
of stocks traded on the day
20. Yield: Refers to the return
on investment derived from dividend payments
There are more words exclusive
to the stock market. If we list them all here, it can run up to as many as 200,
the same number in years since the U.S. stock trading began. Of course, you are
under no obligation to memorize each and every word in the stock market
vocabulary. It won’t hurt to learn some ‘keywords’ that matter.
We end this piece by reminding
you the snippets we shared are just the beginning. The learning curve is steep.
Hitting it big in the stock market is not like instant coffee. You need to
brew, percolate and maintain the heat. You can savor the aroma only when you
have mastered the craft.
The stock market is no longer for the tycoons
but for the little guys in the mainstream too. Besides, if you have enough
funds to invest, you are also qualified to be rich.
3 Mar 2017 4:38 PM | Anonymous