The Archives

Sayanee's blog 2005 - 2012. Checkout her latest blog!

How the Wall Street Works by David Scott

17 Aug 2007 on learning

  1. What and where is Wall Street
  2. What is Stock?
  3. What are bonds?
  4. How are securities traded on Wall Street?
  5. How do stock exchanges function?
  6. How does the Over-The-Counter market work?
  7. What financial inb\vetsments other than Stock and Bonds are available on Wall Street?
  8. How do I locate a Good broker and Open an Account?
  9. How do I interpret Financial Information?
  10. How are securities Valued?
  11. Should I invest in Mutual Fund?
  12. How are Wall Street Investments taxed?
  13. What are the risks of investing in Wall Street?

What and where is Wall Street?

Wall Street is much a concept as it is a place. In a physical sense, Wall Street is a street in the financial district of New York City. At the same time, it represents a central market in which securities are issued and traded. Thus, in a broad sense Wall Street can be thought of as encompassing the financial district of New York, but also all of other financial districts around the globe.

What factors determine the value of a share of stock?

The value of a share of stock depends on the value of the business that issued the number of shares of stock the business has outstanding. The greater the value of business, the greater the value of the shares of ownership of the business.

Is all stock basically the same?

2 major types of stock are issued by businesses, although one type is by far the most popular. If a company has only a single type of stock outstanding, it will certainly be common stock. Actually, companies sometimes issue more than one class of common stock. Preferred stock, the other major kind of stock, is much less popular. Nearly all companies have common stock outstanding, but a smaller number have preferred stock outstanding.

As a stockholder, can I earn a profit from anything other than increases in the value of stock I own?

Many companies distribute to the owners a portion of the firm’s profits. These profit distributions, or dividends, are generally declared and paid by check every 3 months, although some companies choose to pay dividends annually or semiannually. Dividends are a source of stockholder income, just as an increase in the value of stock is a source of income. In fact, because dividends are generally paid in cash, investment income from dividends can be spent. On the other hand, profit from increases in the value of stock isn’t available to by things unless some shares of stock are sold.

Important dividend dates for stock holders…

- Declaration date - Ex-dividend date - Record date - Payment date Any pointers on stock investments?

First, buy stock for the long term. Stocks tend to experience large fluctuations in price, so it is very risky to invest money you are likely to need within a year or less. Second, invest in stock issues that are consistent with your investment goals. It is one thing to invest in risky new issues or the stock of small untested companies when you have a substantial amount of excess funds. It is quite another thing to invest in these stocks when you need to preserve principal of your investment. Third, don’t invest in a stock without first undertaking some research on your own. …. Fourth, continually reevaluate your investment needs with a view toward rearranging your portfolio. The stock that fit your needs at 25 are unlikely to be the same stock that fit your needs at age 55. In general you move towards a more conservative portfolio as you grow.

How do stock exchanges function?

A stock exchange is a central market place where buyers and sellers or agents and sellers meet to engage in securities transactions. Market makers on the exchange floor facilitate this trading by standing ready to buy and sell specific securities they have been assigned. The market makers execute trades for themselves and between other members of the exchange who represent individual and institutional investors. The majority of smaller transactions on the exchange now take place electronically.

How does Over the counter market work?

The Over-The-Counter (OTC) market is comprised of interconnected dealers who serve as market makers for thousands of different stocks and bonds. The OTC market is the primary market for debt securities and for thousands of equity securities. While the OTC marker once served as a market for common stocks that did not qualify for listing on an organized exchange, it has primary market of the common stocks of many large and well-known corporations.

What is Nasdaq?

Nasdaq is an acronym for National Association for Securities Dealers Automated Quotations. NASDAQ was established in 1971 and is a centralized quotations system for market makers to post firm bid and asked quotations for the best-known and most actively traded OTC securities.