Introduction to Stocks

Ever wanted to own a piece of Apple, Tesla, or Netflix? Well, guess what? You can! The stock market lets you buy tiny slices of big companies, and when they grow, so does your money.

But before you dive in, you need to understand how stocks work, why prices jump up and down, and how traders actually make money — whether the market is booming or crashing.

By the time you finish this, you’ll know exactly how the stock market operates, even if you’ve never looked at a stock chart before.

Let’s get started!

What are stocks?

Stocks, also known as equities, represent ownership in a company. When you buy a stock, you’re not just looking at a number on a screen — you actually own a small part of that business.

Let’s say you decide to buy shares of Apple (AAPL). The moment you buy that stock, you officially become a part-owner of Apple. You might only own a tiny fraction, but as long as you hold that stock, you share in the company’s success. If Apple’s business grows and its stock price rises, the value of your shares increases. If Apple struggles, the value of your investment may go down.

But when you trade, you don't blindly trade stocks; first, you have to understand the different types of stocks.

Different types of stocks

Just like ice cream, stocks come in different varieties, and each has its taste. Let me introduce you to the main ones you'll encounter.

First up are growth stocks. These are the exciting ones - companies that are growing fast and reinvesting everything back into getting even bigger. Think of how Amazon grew from an online bookstore to... well, everything. These stocks can make you a lot of money if the company succeeds, but they can also be risky. They're like planting a seed that could grow into a mighty oak... or might not sprout at all.

Then there are value stocks. These are like finding a designer jacket at a thrift store - companies that are worth more than their current stock price suggests. Warren Buffett made his fortune finding these hidden gems. They might not be as exciting as growth stocks, but they can be very rewarding if you're patient.

Dividend stocks pay you just for owning them. These companies distribute a portion of their earnings to shareholders regularly.

Think of them as owning a rental property — even if the value of the property doesn’t skyrocket, you still get paid every few months. Established companies like Coca-Cola, Johnson & Johnson, and AT&T are known for consistently paying dividends.

Common Stocks: These are the standard stocks that most traders buy. As a common stockholder in McDonald's, you'd have voting rights at shareholder meetings and could benefit from both price appreciation and dividends.

Preferred Stocks: Think of these as a hybrid between stocks and bonds. AT&T's preferred stock, for example, pays a fixed dividend that's higher than common stock dividends, but you typically don't get voting rights or as much price appreciation potential.

Blue-Chip Stocks: Now, let’s talk about blue-chip stocks — the champions of the stock market. These are big, well-known companies that have been around for a long time and are leaders in their industries. Think of Apple, Microsoft, or McDonald’s.

These companies are like the strong, steady players in a sports team. They don’t always score the fastest goals, but they play smart, stay consistent, and rarely lose big. Even when the stock market is shaky, blue-chip stocks tend to hold their ground better than smaller companies.

They may not give you the biggest returns overnight, but they are trusted, reliable, and built to last. If the stock market were a poker game, blue-chip stocks would be the players who always have chips on the table, no matter what happens.

Penny Stocks:

On the other end of the spectrum, we have penny stocks — the high-risk, high-reward players. These are shares of small, often unknown companies, usually trading for less than $5 per share.

Penny stocks can explode in price overnight, but they can also collapse just as fast. Many of these companies are in their early stages, struggling to grow, or even on the verge of shutting down.

A perfect example is GameStop’s crazy ride in 2021. It was a struggling company with a low stock price — until a wave of retail traders sent it soaring from a few dollars to over $400 per share in just weeks. Some people made life-changing money, while others bought in too late and lost big when the stock crashed back down.

Okay...

Well, what makes the prices go up and down

What makes stock prices go up and down?

Stock prices move because of two simple things: supply and demand (just like your favorite sneakers getting expensive because everyone wants them).

Here's a real example: Remember when everyone was stuck at home during lockdowns? Zoom's stock price shot up because

More people needed video calls (Higher demand).

There weren't many alternatives (Limited supply).

Everyone thought Zoom would keep growing

Later, when offices reopened and competitors emerged, Zoom's stock price fell. That's supply and demand in action!

Stock Fundamentals

Before investing or buying any stock, it is important for you to see how valuable the stock is

A company’s fundamentals reveal its financial health, profitability, and overall value, giving traders and investors clues about whether a stock is worth buying, selling, or holding.

Earnings per share, or EPS, is one of the most important indicators of a company’s profitability. It measures how much profit a company generates for each share of stock.

If Apple earns $100 billion in profit and has 1 billion shares, its EPS is $100. When EPS rises, it’s a sign that the company is growing and making more money, which often pushes the stock price higher. If EPS starts falling, it could mean the company’s profits are shrinking, which can be a red flag for investors.

The price-to-earnings (P/E) ratio helps determine whether a stock is expensive or a good deal. It’s calculated by dividing the stock’s price by its EPS.

If Amazon’s stock is trading at $100 per share and its EPS is $5, its P/E ratio is 20, meaning investors are willing to pay $20 for every $1 of earnings. A high P/E ratio suggests that investors expect strong future growth, but it could also mean the stock is overpriced. A low P/E ratio may indicate a stock is undervalued, though it could also be a sign that investors don’t see much growth potential.

Revenue growth is another critical factor. A company’s revenue, or sales, represents the total money it brings in before expenses. Investors look for businesses with consistent revenue growth because it signals expansion. When Zoom’s revenue surged by 300% during the pandemic, its stock price skyrocketed as investors saw massive demand for its services. If a company’s revenue is declining, it could be losing market share or struggling against competitors.

Debt levels also play a major role in a company’s stability. Companies often take on debt to expand, develop new products, or acquire other businesses, but too much debt can be risky. The debt-to-equity ratio measures how much a company relies on borrowed money compared to its own assets.

When Tesla reduced its debt while increasing profits, investors saw it as a sign of financial strength, which helped push its stock price higher. Companies with manageable debt are usually more stable, while those with excessive debt could struggle during economic downturns.

Market capitalization, or market cap, measures a company’s total value in the stock market. It’s calculated by multiplying the stock price by the number of shares available. Large-cap stocks, like Apple and Microsoft, are well-established and stable. Mid-cap stocks are smaller but have strong growth potential. Small-cap stocks are riskier and more volatile but can deliver higher returns if they succeed. Investors often balance their portfolios with a mix of large, mid, and small-cap stocks to manage risk and reward.

Understanding fundamentals helps traders separate good stocks from bad ones. A stock might have hype and momentum, but if the fundamentals are weak, its success may not last.

Before buying any stock, it’s important to check whether the company is profitable, fairly valued, and financially stable. Strong fundamentals help investors make informed decisions rather than relying on emotions or short-term trends. A stock’s price might rise or fall in the short term, but in the long run, its fundamentals determine its true value.

Now, how to trade stock

How do traders make money?

There are two main ways to make money with stocks.

Buy low, sell high

This is the easiest to understand. You buy a stock when it’s cheap, wait for it to grow, and then sell it at a higher price to make a profit.

Let’s take a real example.

Back in 2010, Amazon’s stock was trading at around $100 per share. Fast forward to 2021, and it had climbed to over $3,500 per share.

That means if you had bought 10 shares for $1,000 in 2010, they would have been worth over $35,000 in 2021 — without doing anything except holding onto them.

Sell high, buy low (short selling)

Most people think you can only make money when stocks go up, but with short selling, you can profit when stocks fall. Here’s how it works:

Let’s say a fashion company’s stock is at $50 per share, but you believe the brand is fading and its stock price will drop.

You borrow 100 shares and sell them at $50 each, collecting $5,000 in cash.

A few weeks later, the stock dropped to $30 per share.

You buy back those 100 shares for $3,000, return them to the broker, and keep the $2,000 profit.

Short selling is a way to bet against stocks, but it’s risky — if the stock price rises instead of falling, your losses can be unlimited.

The stock market: where it all happens

The stock market isn’t some giant room filled with people in suits screaming, “Buy! Sell!” (okay, that used to be true, but not anymore).

Today, it’s a global, high-speed, electronic marketplace where stocks are bought and sold with just a few clicks.

The Two Biggest Players in the U.S. Stock Market

NYSE: The Wall Street Veteran

The New York Stock Exchange (NYSE) is like the grandfather of all stock markets. It’s been around since 1792—long before the internet, computers, or even electricity!

This is where big, well-established companies like Coca-Cola, McDonald’s, and Boeing trade their stocks. These companies have been around for ages, making NYSE the home of traditional, blue-chip stocks.

Even though most trading is done electronically now, the NYSE still has a physical trading floor on Wall Street. If you’ve ever seen those traders in blue jackets waving their hands and shouting orders on TV, that’s the NYSE in action!

NASDAQ: The Silicon Valley Powerhouse

Now, if the NYSE is the wise old grandfather, NASDAQ is the cool, tech-savvy younger sibling.

This exchange is where you’ll find the biggest tech giants like Apple, Microsoft, Amazon, Google, and Tesla. Unlike the NYSE, NASDAQ is fully electronic — there’s no physical trading floor, just ultra-fast computer networks handling trades in milliseconds.

Stock market hours

The stock market doesn’t run 24/7 like a convenience store, but thanks to global exchanges, trading never really stops.

The main U.S. stock market session is from 9:30 AM to 4:00 PM Eastern Time (ET), Monday through Friday.

But here’s the fun part: markets around the world are constantly trading. It’s like a giant financial relay race:

When New York closes, London is still trading.

When London starts winding down, Tokyo is just getting started.

When Tokyo wraps up, New York is waking up and getting ready to open again.

This means that even when you’re sleeping, markets in another part of the world are reacting to news, moving prices, and creating trading opportunities.

Yes… but not always!

Whether you want to trade before the market opens or after it closes depends on the broker you’re using. Some brokers allow pre-market and after-hours trading, while others keep it strictly to regular market hours.

Even if your broker offers extended hours, keep in mind that these sessions come with lower liquidity, wider spreads, and more unpredictable price moves.

So, while you can trade, it doesn’t always mean you should!

Pre-Market & After-Hours Trading: The Early Birds and Night Owls

Pre-market trading (4:00 AM - 9:30 AM ET) → The early birds trading before the official market opens. This is where traders react to overnight news, company earnings reports, and global events.

After-hours trading (4:00 PM - 8:00 PM ET) → The night owls are trading after the regular market closes. This is when companies release earnings reports, and traders adjust their positions based on late-breaking news.

Trading during these extended hours can be tricky. There’s less activity, fewer buyers and sellers, and bigger price swings.

Think of it like shopping at a grocery store at 2 AM — there are fewer people, fewer choices, and sometimes the prices feel a little off.

For most beginners, sticking to regular market hours is the safest bet since that’s when the market is most liquid and prices are more stable.

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