If the thought of investing in the stock market frightens you, you are not alone. It’s natural to be cautious as you take your first steps into investing. This is especially true if you’re not too well-versed in the basics of the stock market. It may be tough to start as the stock market jargon can almost sound like a foreign language.
The key to building wealth is developing good habits. We’re here to tell you that you don’t need to be the Wolf of Wall Street to start trading stocks. It’s okay even if you think you fall short in terms of financial knowledge. Everybody was once a beginner. Start by understanding some of the basic mechanisms of the stock market today. Learn the forces that influence stock prices, pay attention to how macroeconomic issues affect stock price direction, and most importantly learn about how to actually buy and sell stocks. After all, it’s about developing a feel of how to invest.
What Is The Stock Market?
Investing to reach financial freedom is a dream many people share but few ever achieve. To many, one of the best ways to achieve that is to get started in the stock market. So, here begs the question, what is the stock market? The term “stock market” often refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares take place. Simply put, the stock market enables buyers and sellers to make a trade of shares of publicly-listed companies.
Getting into the stock market for the first time can be intimidating for beginners, especially if you don’t know how the stock market works. Before you start your investing journey, you also need to know where to buy stocks. While today it is possible to purchase almost everything online, there is usually a designated market for every commodity. Such dedicated markets serve as a platform where numerous buyers meet, interact, and transact. For instance, when you need groceries, you go to the supermarket. When you’re looking for stocks to buy today, you go to the stock market.
Assuming you’re based in the U.S., you most probably have heard of global stock exchanges like the New York Stock Exchange or the Nasdaq. Or if you plan to start your investing journey straight to other asset classes such as options and futures (which is normally not recommended), you might have heard of the Chicago Board Options Exchange (CBOE). These leading exchanges, along with several other exchanges operating in the country, are from the U.S stock market.
How Does The Stock Market Work?
It is also worth mentioning that the stock market isn’t exactly like a grocery store. To buy and sell stocks, you need to go through an intermediary known as a licensed brokerage. That’s because the stock market is a secured and regulated environment where market participants can trade shares with low, if not zero operational risk.
The stock market also acts as primary markets and secondary markets. Now, what do I mean by that? For starters, the primary market is where shares are issued and sold to investors for the first time through the process of an initial public offering (IPO). If you’re passionate about getting into the investment world, you may have heard about the most recent popular IPOs like Airbnb (NASDAQ: ABNB) or Roblox (NYSE: RBLX). Above all, this process allows companies to raise capital from investors.
Following the IPO process, the stock exchange serves as a trading platform that facilitates regular buying and selling of the listed stocks. This constitutes the secondary market. The stock market exchange earns a fee for every transaction that occurs on its platform during the secondary market activity. When buying stocks on the primary market, investors are purchasing stocks directly from the issuer. The secondary market is where existing stocks are traded between investors or traders.
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What Time Does The Stock Market Open?
When does the stock market open? This may seem like a simple question, but the answer isn’t as straightforward as you’d think. The regular trading hours for the U.S. stock market, including the New York Stock Exchange and the Nasdaq are from 9.30 a.m. to 4 p.m. Eastern time on weekdays (apart from stock market holidays).
But what if I told you trading can also occur outside normal stock market hours? For instance, on regular market days, there is ‘pre-market trading. While the hours may vary, they can start as early as 4 a.m. while most pre-market trading takes place between 8 a.m up until regular trading hours begin at 9.30 a.m.
What Time Does The Stock Market Close?
As mentioned above, the regular trading days closes at 4 p.m. Eastern time. However, on early-closure days, which are typically right before or right after a market holiday, the markets will close early, usually at 1 p.m. EST.
There are also ‘after-hours sessions’, which typically span from 4 p.m to 8 p.m Eastern time. It’s worth mentioning that these trades taking place outside regular hours are made over electronic communication networks (ECNs), which allow buyers and sellers to connect directly rather than via a middle person. While this type of trading was previously only accessible by large institutional players, there are increasingly more brokers such as Interactive Brokers and Fidelity which can facilitate this type of trading today.
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Is The Stock Market Open On Weekends?
Considering the advancement of technology today, it’s natural for some investors to ask – why don’t stocks trade over weekends? Especially when cryptocurrencies are trading 24/7. As you probably know, there are no regular trading hours for stocks on Saturdays or Sundays. However, if you see a headline on Sunday night saying that stock futures are up, that’s because the futures market begins trading at 6 p.m. Eastern time on Sundays.
Stock Market Holiday Calendar 2022
- New Year’s Day: Friday, Jan. 1
- Martin Luther King Jr. Day: Monday, Jan. 17
- Washington’s Birthday/Presidents Day: Monday, Feb. 21
- Good Friday: Friday, April 15
- Memorial Day: Monday, May 30
- Juneteenth National Independence Day: Monday, June 20
- Independence Day: Monday, July 4
- Labor Day: Monday, Sept. 5
- Thanksgiving: Thursday, Nov. 24
- Christmas: Monday, Dec. 26 (Christmas holiday observed)
How To Invest In The Stock Market
You are now ready to put your money into the best wealth generator: the stock market. The question here is how to invest in the stock market for beginners? How to invest money in the stock market for beginners can be confusing at best. Investing requires you to set aside money while you are busy with life and have that money work for you so you can reap the rewards of your labor in the future.
Let’s assume you have set aside $10,000, and you’re ready to enter the investment world. So, what happens next? The decision to hire a financial advisor or to simply do the research on your own to pick the best stocks to buy is entirely up to your own free will. Investing in the stock market might be easier than many would’ve thought as all you need is an online brokerage account to get started. There are, however, a set of questions you need to ask yourself before embarking on the investing journey.
- What kind of Investor are you?
- Which online brokerage account would be best for your goals?
- How much money are you setting aside for stock investing?
- Are you planning to invest in stocks, mutual funds, or ETFs?
- Short-term or long-term investing?
- How are you planning to manage your portfolio?
What Are U.S. Stock Futures?
Before knowing what U.S. stock futures are, it is important to understand the definition of futures. Futures generally refer to a contract that stipulates the buying or selling of a specified commodity for a certain price at a specific point in time in the future. So, what does it mean when the futures trade higher ahead of the opening bell? It simply means these indices will trade higher following the opening bell. Simply put, it is an indication of how the market sentiment will be when the market opens.
You can trade stock futures on major U.S. stock exchanges just like you would do with traditional stocks. These major futures contracts are traded on the CME Globex system and are called E-mini contracts. The most common U.S. stock futures are the following:
- Dow Futures- a contract based on the widely followed Dow Jones Industrial Average (DJIA), an index of 30 major U.S. companies. The value of one Dow Future contract is 10 times the value of the DJIA. For example, if the DJIA is trading at 33,000, the price of one Dow Future is $330,000.
- S&P 500 Futures- S&P 500 futures contracts are agreements to buy or sell stocks listed on the S&P 500. As its name suggests, it’s an index made up of stocks of the 500 largest US companies. Unlike the stock exchange, S&P 500 futures traders are active five days a week, for 23.5 hours per day, plus Sunday evening.
- Nasdaq 100 Futures- Nasdaq 100 contracts track the stock prices of the 100 largest companies listed on the Nasdaq Stock Exchange.
What Caused The Stock Market Crash Of 1929?
During the 1920s, the U.S. stock market underwent rapid expansion, reaching its peak in August 1929 after a period of wild speculation during the roaring twenties. It was called the “Roaring Twenties” as it was a period of economic prosperity with a distinctive cultural edge in the U.S. and Europe. However, that era came to an abrupt end on October 29, 1929, when the stock market crashed. Billions of dollars were lost, wiping out thousands of investors. The crash began on October 24, 1929, known as “Black Thursday”, when the market opened 11% lower.
In the aftermath of Black Thursday, the U.S. and the rest of the industrialized world spiraled downward for an extended period, known as the Great Depression. It was the deepest and longest-lasting economic downturn in the history of the Western Industrialized world up to that time.
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What Is A Limit Order In Stocks?
A limit order in stocks is an order to buy or sell a security at a specified price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Limit orders are not guaranteed to be executed.
Limit orders can be a helpful tool for investors who have a definite price target in mind for a stock purchase or sale. By placing a limit order, investors can specify the exact price they are willing to pay or accept for a stock and rest assured that they will not have to pay more or accept less than what they are comfortable with.
What Is A Put In Stocks?
A put in stocks is an options contract that represents the right to sell a particular stock at a set price within a certain time frame. When you buy a put, you’re essentially betting that the stock’s price will fall below the strike price before the expiration date. If it does, you can sell the stock at the strike price and pocket the difference. Additionally, puts are widely used as a hedge against falling stock prices. Though, they can also be used to generate income, through what’s known as a covered put strategy.
In this case, you would sell puts while simultaneously holding the underlying stock position. If the stock’s price falls below the strike price, you can exercise your option to sell the shares and offset some of your losses. If the stock’s price doesn’t fall, you simply keep the premium and move on. Either way puts give can give investors flexibility when it comes to managing downside risk.
What Is A Wash Sale In Stocks?
A wash sale is a sale of a security (usually stocks) at a loss, followed by the purchase of a “substantially identical” security within 30 days. Next, the wash sale rule was created to discourage taxpayers from taking losses on securities simply to offset taxable gains. The wash sale period begins on the date of the sale and extends for 30 days before or after that date. If you purchase a substantially identical security during this period, the wash sale rule applies and the loss is disallowed. Instead, the cost basis of the new security is increased by the amount of the disallowed loss.
The wash sale rule applies to more than just stocks. It also applies to bonds, mutual funds, and options. If you sold shares of an ETF for a loss and then purchased shares of a similar ETF within 30 days, the wash sale rule would apply and your loss would be disallowed. The wash sale rule only applies to losses. If you sell a security for a profit, you’re free to repurchase it immediately (or even before you sell it). There’s no waiting period and no limit on how many times you can do this.
