Stock markets are platforms where investors come together to buy and sell shares of publicly-listed companies. This is done either through formal exchanges or over-the-counter ("OTC") marketplaces. Stock markets used to be physical, but nowadays the majority (if not all) exist only as electronic marketplaces.
How can I use the stock market when I invest in stocks?
- You can trade stocks on a stock exchange, which is a subset of a stock market. Every country has a stock market, and if you say that you trade in the stock market, it means that you buy and sell shares/equities on one (or more) of the stock exchange(s) that are part of the overall stock market in that country. For example, if you want to buy a U.S. equity, you have a choice of buying it on the New York Stock Exchange or the Nasdaq Stock Exchange. However, if you want to buy a Hong Kong equity, you can only buy it on the Hong Kong Stock Exchange as that is the only stock exchange in the country. Some stocks are also listed on multiple stock exchanges that are not in its home country. Examples include Tencent Holdings, which is based in China but are listed in Hong Kong and U.S.'s stock exchanges.
- Not only stocks change hands-on stock markets. You can also trade other financial securities, like exchange-traded funds (ETFs), corporate bonds, and derivatives.
- Private companies can be listed in stock exchanges by going public through an initial public offering (IPO). Stocks of companies that just went public are usually more volatile, and you cannot use past earnings and fundamentals to determine the stock's valuation. Of course, higher risk can also bring higher opportunity, but the limited amount of data available on fresh IPOs should be something you keep in mind.
Debt to Equity Ratio
Used to evaluate a company's financial leverage and is calculated by dividing a company's total liabilities by its shareholder equity.
Profit is the financial benefit realized when revenue from a business is higher than the costs and taxes involved in operating that business.
Alternative investment class composed of funds that invest directly in private companies or that buy public companies and take them private
Time of declining economic activity, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and sales.
A stimulus package is a coordinated effort by the government to increase spending and investment to "stimulate" an economy out of a downturn.
Shorting a stock
Trading strategy that tries to take advantage of the decline in a stock price by borrowing a stock and sell it now while planning to repurchase it later for a lower price.
Market-capitalization-weighted index tracking the performance of the 500 largest U.S. companies