Stock market index
A stock market index is a number that measures a section of the stock market or a group of stocks. Any movement of stocks in this group will affect the index value. The stock market index in turn is used to measure the performance of portfolios like mutual funds.
For example, XYZ index is composed of 5 companies. Two companies out of 5 companies of XYZ go up in value today, one company goes down and the remaining two stay as they were yesterday. The total value of the stocks of these 5 companies is now 2% higher. The best way to look at an index number is to compare it with the previous day’s figure to see if the value goes up or down. This is more important than points.
You heard about stock market indexes like Dow Jones or S&P 500 index? They are indexes made up of stocks of different companies.
Types of indices
The Dow Jones Total Stock Market Index represents the stocks of the companies publicly traded in the United States, including those traded in New York Stock Exchange (NYSE) and American Stock Exchange (ASE).
A division of McGraw-Hill, Standard & Poor’s or S&P is also one of the most famous indices. The number following S&P refers to the number of companies that are included in the index. For example S&P 500 for 500 companies, 1500 for 1,500 companies and so on. The same is true with the British FTSE100 stock market index, informally “footsie” index which lists 100 highly capitalized UK stocks in the London Stock Exchange.
S&P 500 and FTSE 100 together with the Japanese Nikkei 225 are some of the mostly quoted indices in the world’s business news. MSCI World, (MSCI stands for Morgan Stanley Capital International), is an index that includes the world’s large companies regardless of where they are traded.
Some indices track the performance of specific sectors of the market like The Morgan Stanley Biotech Index for the 36 firms in the biotechnology and Linux index for companies that service or sell Linux operating system environment.
Why are indices important?
A national index stands for the country’s stock market index and the performance of the country’s stocks, thereby reflecting an investor’s sentiment with regards to the country’s economy.
Measure your investments against a relevant stock market index if you are investing in individual stocks or mutual funds. It is highly important to know if your investments are consistently lagging behind the index or not. If it is lagging behind, then it might be the proper time to come up with a new investing approach.
Showing posts with label stocks. Show all posts
Showing posts with label stocks. Show all posts
Wednesday, May 5, 2010
Friday, April 30, 2010
The Way Stock Market Works With Stocks
History
The stock market is a place which facilitates the exchange of goods between interested parties. Exchange of stocks start when a company (a corporation at that because single proprietorship or partnership business are not allowed), wants more money for its business. It has to get money somewhere and the option is to borrow money or sell stocks. Borrowing money shall put it to debt so it could choose to sell stocks. Selling stocks means it sells part ownership of its company. Stock owners long ago realized that it would be more convenient if there were a common place where they could go to trade (or buy and sell) stocks with one another. So, the stock exchange was born. From this stock exchange, grew today’s stock market.
Trading of stocks
Selling and buying of stock works this way. Let’s just say, you open an account with Trade E. You send Trade E a check of $1k. Trade E deposits the check into a trading account that is listed in your name. You log onto Trade E and place an order to buy 100 shares of a stock in Company A, which is trading at $5. Trade E now tells its network that there is a demand of 100 shares of Company A. If one of his networks finds someone who is willing to sell 100 shares of Company A, they execute the trading of stock between you and the person selling the shares. The stock market trade information is brought to a clearinghouse where the information is processed and the shares will now be registered to you. The clearinghouse will designate 100 shares of Company A to Trade E and Trade E will designate those 100 shares or stocks as yours.
Public market
The stock market works depending on its organization and government regulation. There are stock exchange corporations which are non-profits. There are also for-profit businesses. These for-profit companies earn money by providing trading services. When a company goes public, it has the opportunity for additional funds since investors can purchase its shares. But it is exposed to stricter regulatory control by government regulators. When a company goes public or wants to participate in stock market by selling stocks for the first time, it has to file necessary paper works with the government and the exchange it has chosen, it makes an Initial Public Offering (IPO). The company will decide how many shares to issue on the public market and the price it wants to sell them for.
The stock market is a place which facilitates the exchange of goods between interested parties. Exchange of stocks start when a company (a corporation at that because single proprietorship or partnership business are not allowed), wants more money for its business. It has to get money somewhere and the option is to borrow money or sell stocks. Borrowing money shall put it to debt so it could choose to sell stocks. Selling stocks means it sells part ownership of its company. Stock owners long ago realized that it would be more convenient if there were a common place where they could go to trade (or buy and sell) stocks with one another. So, the stock exchange was born. From this stock exchange, grew today’s stock market.
Trading of stocks
Selling and buying of stock works this way. Let’s just say, you open an account with Trade E. You send Trade E a check of $1k. Trade E deposits the check into a trading account that is listed in your name. You log onto Trade E and place an order to buy 100 shares of a stock in Company A, which is trading at $5. Trade E now tells its network that there is a demand of 100 shares of Company A. If one of his networks finds someone who is willing to sell 100 shares of Company A, they execute the trading of stock between you and the person selling the shares. The stock market trade information is brought to a clearinghouse where the information is processed and the shares will now be registered to you. The clearinghouse will designate 100 shares of Company A to Trade E and Trade E will designate those 100 shares or stocks as yours.
Public market
The stock market works depending on its organization and government regulation. There are stock exchange corporations which are non-profits. There are also for-profit businesses. These for-profit companies earn money by providing trading services. When a company goes public, it has the opportunity for additional funds since investors can purchase its shares. But it is exposed to stricter regulatory control by government regulators. When a company goes public or wants to participate in stock market by selling stocks for the first time, it has to file necessary paper works with the government and the exchange it has chosen, it makes an Initial Public Offering (IPO). The company will decide how many shares to issue on the public market and the price it wants to sell them for.
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