The Beginner’s Guide to Understanding Investing and the Stock Market

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While the stock market was once considered a tool of the wealthy, a lot has changed even in the last few decades. With the rise of commission-free online brokerage accounts, now anyone can buy or sell stocks right from their own computer screen.

The idea of delving into the stock market can seem intimidating for beginners at first, but you’ll quickly discover that buying and selling stocks is not nearly as hard as you may fear. Join us for a quick overview of the stock market, how it works, and how to get started.  

How Was the Stock Market Established?

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The stock market as we know it today has been several centuries in the making. As early as the 1300s, Venetian moneylenders realized that they could profit from buying and selling debt. Then in the 1500s, Belgium developed a stock exchange of sorts that consisted exclusively of bond and promissory notes.

It wasn’t until the 1600s that the Dutch East India Company became the first publicly-traded company by offering investors dividends to finance the company’s sea voyages.

Cut to the late 1700s, when a small group of brokers established what would become the New York Stock Exchange (NYSE) under a Buttonwood Tree. The NYSE quickly became the most powerful stock exchange in the world and was largely unchallenged until the birth of the National Association of Securities Dealers Automatic Quotation System (NASDAQ) in 1971. Unlike the NYSE, the NASDAQ exists entirely online.  

How Does the Stock Market Work?

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While entire books could (and have) been written on the intricacies of the stock market and how it works, the basic idea behind it is actually pretty simple. If a company wants to make extra money, usually to expand their business operations, they can sell shares of their company on the stock market.

Investors can then purchase the company’s stock shares and trade among themselves. When you buy a stock in a company, you’re actually buying a small piece of ownership in the company itself. From there, it’s all about supply and demand.

If you own shares of a company that does well, then the value of your stock is likely to go up. When this happens, you can make a profit by selling it for a higher price than you paid for it. On the other hand, if the company does poorly, its stock price may drop in value. When this happens, you can either hold onto the stock and hope that the company gets back on track in the future or cut your losses and sell the stock for less than what you paid for it.  

How to Begin Trading Stocks

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Although the stock market may sound intimidating, it’s actually incredibly simple to begin trading stocks. The tricky part is knowing which stocks to invest in and when. Much of this comes down to research and educating yourself on various trading styles and techniques. But first thing’s first.

To get started, you’ll first need to sign up for a brokerage account. Back in the old days, investors used to rely on brokers to place their orders for them. There are still brokerages that offer this type of service to hands-off investors for a fee. But today, there are also plenty of commission-free brokerage account options that will allow you to sign up online and do all of your own buying and selling.

Brokerages such as Charles Schwab, TD Ameritrade, WeBull, Fidelity, and more will allow you to sign up for a free brokerage account online within minutes. The process is similar to opening a bank account and will require you to fill in some basic information about yourself and provide identity verification. Once this is done, you can connect your checking account to your new brokerage account and fund it with however much money you want to invest.  

How to Buy Your First Stock

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Once you’re ready to start placing trades, it’s time to decide which company or companies you want to invest in. For example, let’s say that you’ve already decided that you want to invest in shares of Apple. To place your order, you’d simply enter Apple’s name or ticker (AAPL) in the search tab of your brokerage account.

Apple’s information will then pop up along with a graph that shows how the company’s stock price has been fluctuating over various amounts of time and the average price it’s going for now. You’ll also be able to see both the ask and bid prices for the stock at the moment.

The ask is the lowest possible price for which a seller is currently willing to sell the stock, while the bid is the highest possible price that another investor is willing to pay. The difference between these two prices is called the “spread,” and sometimes it fluctuates more than others. 

You can place your own bid with a “limit order,” which will only go through if a buyer is willing to sell for the highest amount you are willing to pay. Or you can place a “market order,” which will usually go through right away at the best possible price. Once you’ve made your selection, simply press the “buy” button and congratulate yourself on your first stock purchase. 

Selling works very similarly. If you want to sell a stock in your portfolio, simply select it from your brokerage account, choose whether you want to sell at market price or a specific limit price, and then hit “sell.” 

Resources and Tools for Beginning Investors

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As mentioned, one of the hardest parts of the stock market is figuring out which stocks to invest in and when. The good news is that many of the best free online brokerage accounts include a great deal of free educational tools.

This is often a great place to start and will provide you with a free way to get a thorough overview of the market, how it works, and what to look for in potential companies to invest in.

There are also several free online learning platforms, such as Tradimo, that offer anyone the chance to learn stock market fundamentals for no charge. If you prefer books, rest assured that there are plenty of great choices for investors at every stage of their journey.  

The important thing to remember is that no one becomes a stock market master overnight. We all have to start somewhere, so don’t be afraid to start small and add to your portfolio as you become more familiar with the markets and how they work.