Understanding the Stock Exchange Market: Bonds, Stocks, and Trading

The Stock Exchange Market

A bond is a document issued by a government or a company borrowing money from the public, stating the existence of a debt and the amount owing to the holder who must show this document in order to obtain repayment of the loan.

Difference between bonds and stocks is that stockholders are owners of the company they’ve invested in whereas bondholders are only lenders.

Issuer is the identity who borrows an amount of money and pays the interest.

-The principal of a bond is the amount that the issuer borrows which must be repaid to the lender.

The coupon is the interest that the issuer must pay.

Maturity is the date that the issuer must pay.

Indenture is the contract that states all the terms of the bond.

A stock is a piece of ownership of a company. Ownership of such portion gives the holder the right to receive part of the company’s profits and to participate in its management and you also have some power within the company.

When a company needs extra money to help grow the business, they can sell some or all the ownership in form of stocks. If you buy the 100% stocks of a company you’ll be the whole company owner.

There are professionals in buying and selling stocks.

A brokerage firm is a dealer of stocks that acts as your agent when you want to buy or sell stocks (nowadays using only website is enough). They charge the investors with a commission fee for their services.

Stockers execute stocks transactions on behalf of investors.

Which stock do I have to buy?

-Stocks recommended on TV, by experts, newspaper.

From big and stable companies (blue stock- conservative). Volatile stocks which can give you a larger and faster gain (risky). Choosing randomly, Checking technical indicators.

Factors to consider:

• How long can I wait?
• How much risk can I afford?
• How many stocks can I afford?

Price of stocks are affected by:

• Supply and demand
• World news
• Inflation
• Terrorist attacks
• Bull (low prices) and bear (high prices) markets
• Oil price
• Company news
• Technical analysis
• Analyst recommendations
• Human psychology

DOW JONES- 30 largest blue-chips companies in the USA

NASDAQ 100- American electronic stock exchange

EUROSTOXX 50- 50 largest bluechips companies from the eurozone

IBEX 35-spanish bluechips companies

NIKKEI 225- 225 major companies in Tokyo stock exchange

FTSE 100- Financial Times Stock Exchange 100 bluechip companies in London

DAX- 30 major companies in Frankfurt

Day trading-you buy and sell within a day

SEC- Security Exchange Commission- control that everything done in SE is legal

Insider trading- Private info about a company. It is illegal

IPO- Initial Public Offer- someone buy all the stocks of a company