What is the stock market?
The stock market is a place to buy ownership in publicly traded companies. The stock market is comprised of stock exchanges where stock transactions for companies take place. These include The New York Stock Exchange (NYSE), Nasdaq, and the Chicago Board Options Exchange (CBOE). Stock exchanges are responsible for price transparency, liquidity, and price discovery for each company listed with them. Your image of wall street might be a room crammed with people waving papers and yelling to get their orders filled, however, now trading is often handled by computers which are much faster and efficient. Trading companies will pay millions of dollars to trim a few inches from their wired connection to the exchange servers to shave milliseconds from their transaction times but that is a topic for another article.
Each company listed in the market will fall into a sector or the type of business that company is in. For example, Apple falls into the "Technology" sector, Visa in the "Financial" sector, while Pepsi and Coca-cola represent the "Consumer Defensive" sector. For a full sector map of the S&P 500 companies and how they are doing today, check out Finviz.
I can own part of a company?
Companies register to become a publicly-traded entity by issuing an initial public offering (IPO). The company can raise funds to grow its business by selling small portions of the company (shares) to the public. If you buy their shares, you become a partial owner in that company. After an IPO, a company may also issue new shares which dilute the number of shares in circulation or can buy back shares to reduce the number of shares outstanding. With ownership of a profitable and high-quality company, your investment can grow as more people buy into the stock and drive demand up or if the company pays dividends. Dividends are a way for a company to directly send you your fair share of the profits.
How do I start investing?
First, you will need to open an account with an online broker. While you are waiting for your funds to be transferred to your new broker account begin to familiarize yourself with the platform. Find if your platform has a stock screener and play around with the inputs based on the strategy you decide to follow. Adjust your chart settings to your liking. The most common indicators used on stock charts are the 10, 20, and 50-day simple moving averages. These indicators are a good starting point to become familiar with identifying trends without getting too complicated. Find out if your broker offers paper trading to try out your strategies with no risk to your real money!
Once your funds are in your account and you have identified a company you feel comfortable investing in you will have to wait until markets open. Markets on non-holiday weekdays open at 9:30 AM EST and close at 4:00 PM EST. To place a buy order trade, select how many shares (dollar amount you want to invest divided by share price) and select an order type. Order types are how your bid will act when sent to the exchange. A market order will execute as soon as there are shares available for the current market price. A limit order is placed at a price lower than the current market price, if the price dips below to your limit price the order will be executed and you will be issued the number of shares for the limit price. A stop order is placed at a price above the current market price. If the stock price increases to your stop order price, the order will be executed and you will get the number of shares at the stop price you selected. When you decide to sell, simply issue a sell order the same way you created your initial buy order. That is it, your first market transaction, congrats!