Stock Information for Beginners
Understanding key pieces of information about a stock is important for beginners to gauge how their investment is performing. Like experienced investors, beginners make much more informed decisions when they have and understand the information about a certain stock. Before investing, beginners need to at least understand how financial markets influence stocks and how trading activity around a particular stock affects its value.
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Marketplace
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Stock are commonly traded in organized marketplaces around the world. These formal marketplaces are commonly called stock exchanges and allow buyers and sellers to carry out transactions. The New York Stock Exchange is an example of one of the largest stock exchanges in the world. Corporations that meet certain size and financial standards can list their stock for trading. Other marketplaces include regional stock exchanges in Chicago and Philadelphia.
Volume
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A stock's trading volume measures how many shares were bought and sold during a particular time. This trading activity is important to investors because it measures changes in the supply and demand for a stock. Both high and low trading volumes commonly indicate changes in expectations and might trigger investors to buy or sell stock. For example, a new gaming console expected to be a big seller is likely to stoke investor confidence in the console company causing a spike in demand for its stock. Likewise, if sales are lackluster, investor expectations might lead them to sell their stock before it devaluates any more.
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Stock Index
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A stock index measures the prices of a broad collection of stocks to measure business performance across the economy. As a result, stock indices are used as benchmarks, or points of comparison, to measure growth in the stock market. For example, an often quoted index is the Dow Jones Industrial Average which measures the stock prices of 30 biggest corporations. Similarly, the S&P 500 measures the stock performance of 500 corporations.
Stock Prices
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The stock prices of individual corporations are an important indicator of corporate performance. Generally, stock price is a function of corporate management, profitability and economic environment among other factors. If a corporation is run reasonably well and future profits seem likely, investor expectations will help drive stock price upwards. However, stock price will decline if investors expect the company to encounter financial or managerial difficulties.
Risk
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Historically, the stock market has generated larger returns than other forms of investments. However, as with other ventures with high returns, stocks are risky investments. Movements in stock prices mirror actual and expected business activity. As a result, stocks are sensitive to investor expectations and prevailing economic conditions. Generally, changes in economic conditions have almost immediate effects on the value of a stock which may depreciate gains.
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- Photo Credit Chart analysis image by Dmitriy Lesnyak from Fotolia.com
