Before you can begin stock investing, you have to open a brokerage account. There are a few different options available to you. The least expensive route is an online brokerage firm. Here you can buy and sell for less than $11 a pop and have access to third-party investment research. Full-service brokerage firms will charge you a flat fee, a commission of about $100 per trade, or both. In return, you should expect to receive lots of investment guidance and direction as far as which stocks are better buys than others.
The majority of stocks are sold on one of three exchanges. Think of an exchange like a shopping mall, except there are no chain stores. If you want to buy from the Widget store, for example, you do so only at the exchange where that company, or "store," is located.
The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers, thus reducing the risks of investing. Really, a stock market is nothing more than a super-sophisticated farmers market linking buyers and sellers.
Before we go on, we should distinguish between the "primary" market and the "secondary" market. The primary market is where securities are created (by means of an IPO) while, in the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies. The secondary market is what people are referring to when they talk about "the stock market." It is important to understand that the trading of a company's stock does not directly involve that company.
The most well-known exchange is the New York Stock Exchange (NYSE), or "Big Board." About 5,767 large companies trade on the NYSE where trades are executed auction-style. A specialist on the floor of the exchange must match up a buyer whose bid meets the seller's ask price. The American Stock Exchange (AMEX) primarily lists small-sized and medium-sized companies. Then there's the National Association of Security Dealers Automated Quotations (NASDAQ), where much but not all of the listed companies involve technology. NASDAQ doesn't have a trading floor; instead, it links buyers and sellers via computer where trades are placed electronically.
Next: Stock basics -Common stock and preferred stock
