The Big Mike Podcast

S2 E6. An Introduction To The Stock Market | Stock Market Series


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Common stocks are tiny pieces of companies that are selling for a certain price. You, the investor, can choose whether to buy or sell your stock in a company. You ever watched shark tank? When the entrepreneur comes in and asks the sharks for a deposit of money and a percentage of their company in return, that is essentially what the stock market is doing, but on a much larger scale. This exchange is done through brokers, which are firms that are responsible for managing the exchange between the trader and the company. A shirt company, let’s call them company A asks you to buy a share of their stock at a certain price. Your bid is the amount you are willing to pay for shares of a stock. The second when the ask price, influenced by trading patterns, meets your bid, the order is executed. You now own a percentage of their company for a return on investment.You are now in something called a position, also referred to as “buy and hold,” which means the place you are currently in a stock. You bought a 40 shares of company A’s stock. Your position on company A is 40 shares of stock. Now, if you want to sell these shares, meaning you want to get out of your position, you will close this position.Now, there are two types of market trends that are very important when it comes to analyzing stocks: the bull market, and the bear market. When the market is bullish, it means prices are, on average, in an uptrend. If you were to look at a YTD chart of the S&P 500 in 2023, so far this year it is somewhat a bull market. Bear markets on the other hand refer to downtrends. You look at the 1Y chart for S&P and find out it went down almost 6% in the last 12 consecutive months. These types of markets should also influence your timeliness when it comes to buying or selling your shares of stock.First, lets look at the types of positions that we can go through.Buying Long: buying long essentially means you putting money in a stock expecting the price to go up.

Short Selling: now #1, I do not recommend doing this, because I am personally more conservative when it comes to investing. But, I’ll still tell you anyway. Short selling is selling stock you don’t actually own. Now, that might seem very odd to hear that, but let me explain: short sellers bet on and profit from a drop in the stock’s price. So, you will borrow shares from your broker, who will offer them to you with interest. You will then proceed to sell them, and hope to buy them back at a lower price, giving them a profit based on the amount of movement the stock has made downward. To close the position, you will buy the stock at market price.
Margin Accounts. An example is this: you have $1000 in a margin account, and you want to buy Nvidia’s stock for $10 per share. Normally, you would have 100 shares. Instead, you decided to add margin funds to up to $1000 from the broker to purchase $2000 worth of Nvidia stock, which is now 200 shares of Nvidia at $10. If the stock ends up rising to $20, you can sell the shares for $4000. However, you have to repay the broker’s $1000. This means that the payment, and the initial investment, you had a profit of $2000. If not bought on margin you would’ve only made $1000. Market orders: market orders are simple, and there isn’t anything to really explain. You are basically buying a share of stock at its ask price. Basically if company C was trading at $25 dollars, you would buy each share at $25. Limit orders: a limit order means that you can set a minimum or maximum price based on the position you chose. If you want to buy long, then you set a maximum limit price you would buy it for, and if the price is lower than that max, you can still fill it. Stop orders: stop orders are used to make trading slightly easier. You buy or sell a stock once the price of the stock reaches a specified price, which is the stop price. Once the stop price is reached, your stop order becomes a market order.

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The Big Mike PodcastBy Michael Ndoye