What is the Stock Market? Brief Descriptions of What You Need to Know

New York Stock Exchange Whenever someone talks about the stock market as a place where equities are exchanged between buyers and sellers, the first thing that comes to mind is either the NYSE or NASDAQ, and there's no debate over why. These two exchanges account for the trading of a major portion of equities in North America and the world. At the same time, however, the NYSE and NASDAQ are very different in the way they operate and in the types of equities that trade upon them. Knowing these differences will help you better understand the function of a stock exchange and the mechanics behind the buying and selling of stocks.

Location, Location, Location The location of an exchange refers not so much to its street address but the "place" where its transactions take place. On the NYSE, all trades occur in a physical place, on the trading floor of the NYSE. So, when you see those guys waving their hands on TV or ringing a bell before opening the exchange, you are seeing the people through whom stocks are transacted on the NYSE. The NASDAQ, on the other hand, is located not on a physical trading floor but on a telecommunications network. People are not on a floor of the exchange matching buy and sell orders on the behalf of investors. Instead, trading takes place directly between investors and their buyers or sellers, who are the market makers (whose role we discuss below in the next section), through an elaborate system of companies electronically connected to one another.

Dow Jones Industrial Average Roughly two-thirds of the DJIA's 30 component companies are manufacturers of industrial and consumer goods. The others represent industries as diverse as financial services, entertainment and information technology. When Charles H. Dow first unveiled his industrial stock average on May 26, 1896, the stock market was not highly regarded. Prudent investors bought bonds, which paid predictable amounts of interest and were backed by real machinery, factory buildings and other hard assets. Today, stocks are widely accepted as investment vehicles, even by conservative investors. The circle of investors has widened far beyond the Wall Street cliques of the past to millions of everyday working men and women.

MMM 3M Co. AXP American Express T AT&T BA Boeing Co. CAT Caterpillar Inc. CVX Chevron CSCO Cisco Systems Inc. KO Coca-Cola Co. DD E.I. DuPont de Nemours & Co. XOM Exxon Mobil GE General Electric Co. GS Goldman Sachs Group Inc HD Home Depot Inc. INTC Intel Corp. IBM International Business Machines Corp. JNJ Johnson & Johnson JPM JPMorgan Chase MCD McDonald's Corp. MRK Merck & Co. Inc. MSFT Microsoft Corp. NKE NIKE Inc PFE Pfizer Inc. PG Procter & Gamble Co. TRV Travelers Cos. UTX United Technologies Corp. UNH UnitedHealth Group Inc. VZ Verizon Communications V Visa Inc WMT Wal-Mart Stores Inc. DIS Walt Disney Co.

NASDAQ Created in 1971, the NASDAQ was the world's first electronic stock market. The NASDAQ is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stocks. The term "NASDAQ" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation. In recent times, the acronym was dropped, and NASDAQ is now used as a proper noun. The NASDAQ is traditionally home to many high-tech stocks. The big ones include Microsoft, Intel, Dell and Cisco

S&P 500 Standard and Poor 500 A capitalization weighted index of 500 stocks. Standard and Poor's 500 index represents the price trend movements of the major common stock of U.S. public companies. It is used to measure the performance of the entire U.S. domestic stock market.

Terms Bear market - A period of time in which investment prices are in decline, usually in a couple industries, by fifteen to twenty percent. A bear market most commonly occurs during a recession, a time when unemployment is high, or during a time of quickly rising inflation. Bull market - An period of time in which investment prices are rising or expected to rise. Bull markets most often occur when the market is recovering from a recession or experiencing a boom. Investor optimism can also create a bull market. Common Stock - These are shares in a corporation that entitle the holder to a certain amount of company ownership. Common stock shareholders have voting rights, and receive dividends as the company grows. If the corporation files for Chapter 7 bankruptcy, the common stock shareholder will receive money after bondholders, creditors and preferred stock shareholders. IPO - Initial Public Offering

Terms continued… Public offering - During a public offering new shares are made available. One or more investment banking firms will underwrite a public offering, committing to the issuer that a set number of shares will be sold at a set price. SEC - Securities and Exchange Commission