Stocks Essay

Submitted By Corinna-Foster
Words: 929
Pages: 4

Corinna Foster
Joe Dinnetz
Economics
14 January 2015
The definition of a stock is a share of the value of a company which can be bought, sold, or traded as an investment. People choose to invest their money in this small ownership of a company to increase the amount of money they have. A stock can also be defined by the amount of capital it is raised by a business through shares. A share is a partial ownership of a companies stocks. Owning a share of stock is giving you partial ownership of the company even though it may be small. Once you own this you are entitled to all earnings and assets of the company. This type of ownership in the company is how stocks get value. As the company makes more money they will achieve more investors.
Now when looking at stock you also come across another popular term. An exchange is an organization which holds the market where stocks and bonds can be traded. However a stock exchange does not own shares. They create a marketplace for buyers to look into investing in stock. When it comes down to trading stock there are only a few options. One way is to get a broker.By doing this you are paying them to invest your money for you. This can be very beneficial but also will cost some money out of pocket for the broker. Another similar method would be using a website to trade your stocks. This way you can be more in control and won’t have to spend the money on a broker. When investing you also sometimes want to trade based on the highest price at that point. This is where the option to do market orders can be very important. You can buy or sell your stocks through this method but the price can fluctuate and or decrease drastically which can be a major flaw to this method. Whenever you make an investment you will be going through one of the major trade centers. These are better known as the Primary market, the New York Stock Exchange, the Nasdaq, The Nasdaq marketsite in Times Square, other smaller trade markets online and over-the-counter bulletin board (OTCBB) which is home to penny stock trade. When it comes to the general primary market, they are trading company stocks from big business owners. Whereas the OTCBB focuses on small company penny stocks.

The DOW Jones is a simple yet complex way to see trends in stocks to get a general idea of how the stocks value might change. The original index he created totalled the stock prices of a dozen companies and divided that total by the number of companies. Over time this 12 increased to 30 and a divisor is now used to make up for the effect of mergers and stock splits. Another way to predict your stock performance is with the S&P 500 Method. As you can tell by the name it uses 500 companies market capitalization to track the future performance of many U.S. Stocks. One major flaw of the DOW Jones index is that a low stock price can make a huge move up or down and barely budge the index, but a component with a high price can cause significant changes in the index with much smaller moves.
Another problem is that an index can become susceptible to sectors that are growing in value. As of Dec. 31, 2010, the technology, financial, and energy sectors make up just shy of 50 percent of the total S&P 500. While people can see this trend in the style of products the value of those stocks will go up as people see the trends leaning in that style of product.

When looking to invest there are a lot of things you need to look at. I chose one company to be…