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Buying on margin means that you are buying your stocks with borrowed money.

If you are buying stocks outright, you pay $5,000 for 100 shares of a stock that costs $50 a share. They are yours. You’ve paid for them free and clear.

But when you buy on margin, you are borrowing the money to purchase the stock. For example, you don’t have $5,000 for those 100 shares. A brokerage firm could lend you up to 50% of that in order to purchase the stock. All you need is $2,500 to buy the 100 shares of stock.

Most brokerage firms set a minimum amount of equity at $2,000. This means that you have to put in at least $2,000 for the purchase of stocks.

In return for the loan, you pay interest. The brokerage is making money on your loan. They will also hold your stock as the collateral against the loan. If you default, they will take the stock. They have very little risk in the deal.

One way to think of buying on margin is that it is often comparable to buying a home with a mortgage. You are taking out the loan in the hopes that the value will go up and you will make money. You are in control of twice the amount of shares. All you have to see is the additional profit exceed the interest you have paid the brokerage.

However, there are risks to buying stock on margin. The price of your stock could always go down. By law, the brokerage will not be allowed to let the value of the collateral (the price of your stock) go down below a certain percentage of the loan value. If the stock drops below that set amount, the brokerage will issue a margin call on your stock.

The margin call means that you will have to pay the brokerage the amount of money necessary to bring the brokerage firms risk down to the allowed level. If you don’t have the money, your stock will be sold to pay off the loan. If there is any money left, you will be sent it. In most cases, there is little of your original investment remaining after the stock is sold.

Buying on margin could mean a huge return. But there is the risk that you could lose your original investment. As with any stock purchase there are risks, but when you are using borrowed money, the risk is increased.

Buying on margin is usually not a good idea for the beginner or normal, every day investor. It is something that sophisticated investors even have issues with. The risk can be high. Make sure that you understand all of the possible scenarios that could happen, good and bad.

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For most people, the stock market is a scary thought because they have seen the devastating effects it can have when things go wrong. Stock plummeted after Enron, and even when mergers are announced as with the case of Chase and Bank One, the stock market feels the effects. Even DuPont has seen its stock prices drop when negative information is publicized, so the stock market, for the most part, is a fickle entity.

How does a new investor avoid the pitfalls of the stock market? Research is the only way, and it’s no ironclad guarantee. That means before you invest, you adopt the habit or reading the NYSE and DOW reports in the daily newspapers as well as reading the business section of the newspaper for any reports that may affect the stock prices of a company you may be considering. Of course, sadly, utility companies are always making money, but they are doing it at the expense of consumers like you and me. For some people, investing in the electric or water company is the only place they feel safe, but with all of the mergers of electric companies, that isn’t even a very safe investment in the 21st Century.

A new investor needs to do some heavy reading and studying before investing in the stock market. This is not something that should be decided impulsively, but rather needs fully researched over time. In addition to following the current trends in the stock market, the potential investor needs to also research past trends, and be sure to research far enough in the previous years to ascertain that the company stock is stable for the most part. This requires, as an educated guess, at least five years worth of research, maybe more if time allows. For those who have been in the working force for a few years, the trend has been one of difficulties, and sometimes the most stable company has seen their stock plunge during times of recession or bad publicity.

In addition to checking the history of a company, and the stock market overall, a potential investor should check the trends of companies who have been involved in mergers to see how their stock fared before the merger was announced, afterwards, during acquisition, and after acquisition. After all, the potential for a company after a merger may be a negative one, so it’s important to know how the stockholders and potential investors saw the strength of the company. The price of a company’s stock is a measure of its strength in the economy, and without that, strength, the stockholders can force an unfriendly merger, whereby the stockholders take over the company.

Once you have decided the safest investment for you to make, you need to decide on a financial advisor or broker. It isn’t wise to try to make a direct buy because although it may be cheaper, the services of a broker will prevent or lessen the financial loss in the event of a drop in price. A broker can see the trend and advise you to sell your stock in a given corporation based on trends that are showing. Unless you have learned a great deal about the stock market, there is no way you, as a new investor, can predict these things. The price you pay a broker for managing your account is well worth the peace of mind you will have in knowing your financial interests are uppermost in the mind of your broker. Even with mutual funds, if you have any stocks in your portfolio, which most mutual funds investors do, it’s important to have a broker who can move those stocks around in the event of a downhill trend.

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There are many different stock markets in the US. In most circumstances, the main markets that you will hear of are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the NASDAQ.

The markets are basically where people and companies trade securities. The market is the arena in which the players gather to trade.

The New York Stock Exchange has been around since 1792. It is located on Wall Street in New York City. The NYSE is the largest and best-known stock exchange in the country. It also has very stringent requirements for companies to join its listings. A company must be financially strong and show signs of being an industry leader to join the NYSE. Companies strive to belong to this market, and even pay annual fees for membership.

When a brokerage describes itself as a member of the NYSE it means that the firm has bought a seat on the floor of the NYSE. This means that there is actually a employee on the floor of the exchange buying and selling stock. This is an expensive investment for a firm, costing well over a million dollars.

The American Stock Exchange is similar to the NYSE in that it conducts its trading on a trading floor. The floor is filled with traders who buy and sell securities. The AMEX has been located in Manhattan since 1921. It is known as a major exchange for not only stocks, but also options. You will tend to find slightly riskier and smaller stocks listed on the AMEX, which operates under the NASDAQ-AMEX Market Group, a subsidiary of the National Association of Security Dealers.

NASDAQ, or the National Association of Securities Dealers Automated Quotations, is the youngest of the three major markets. It may also be the one you have heard the most about through the news. It lists just about every stock in the industry, but it is best known for listing technology companies. In fact, it is where you will find many major technology stocks, including Microsoft and Intel. It was launched in 1971 and was the first over-the-counter stock market. It links buyers and sellers via a computer network.

Brokers and dealers will market the stocks by maintaning an inventory in their own accounts. They will buy or sell when they receive an order from an investor. You will find that start up companies that are issuing stock in an initial public offering will often list on the NASDAQ.

When it comes to buying stock, knowing where to find certain types of stock is important. Each market often specializes in slightly different types of stocks.

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If you are looking for a Stock Investing Tip you have come to the right place. Investing tips come from everywhere and from all sources. From strangers you over hear talking in the store to the gurus on the television.

When we are in a strong bull market, and it seems like the market will not go down no matter what, you can get a great stock investing tip just from throwing a dart at the list of stocks in Investors Business Daily, and come out with a winner.

An Investing Tip can come from an article you read in the newspaper or a magazine. Usually the time you read about it, the stock has already made it’s big move. That is when the smart money starts taking their profits and sells to the dump money.

Sometimes investing tips come as a pump and dump. With the smaller priced stocks it does not take much money to buy alot of shares. They will then start talking about, or writing newsletters about how good (pump) the company is just to get people to start buying the stock, and at the same time they are selling (dump) their shares.

If you are getting into the market because of a tip you got, you are bound to lose your hard earned money. Sure you might get lucky a few times, like in a strong bull market, but in the long run you will eventually lose all your money that you set aside for investing.

The best stock investing tip you will ever receive is going to be right here. Do not buy any stock on any tip that you here!!! Do not put your hard earned money in any investment blindly, do your homework. Many beginners in the stock market will feel that they have to jump in on the tip they have gotten in order to make the big buck. They are afraid the train is going to leave without them. They don’t want to be left out of the big move.

There is no reason to be jumping into any stock right away. There are thousands of stocks to invest in. Let the stock price come to you, do not go chasing a stock.

Learning how to invest in stocks is not difficult, but it does take time, just like learning anything in live. Take the time to learn, there are many books to read that will get you going in the right direction. Read them, study them, study the market, practice trading on paper. Take the time to learn how to invest, you will not regret it. The stock market is not going anywhere, it’s been here for a long time, and will continue to be here for a long time to come.

Soon the only stock investing tip you will be listening to will be coming from the knowledge that you have learned, and that is the best investing tip that you can get. Then your friends and family will be coming to you for investing tips.

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Stock market is an inquisitive place for many. It is because the place has given birth to many millionaires and is also responsible for turning millionaires to locals. Thus the bulls and bears have always been charismatic. Now millions of people invest in the stock market to make good money. The aura of the place is such that it is swarming with people any hour of the day and any season of the year. But only few know that how the stock market came into existence or what actually are its origins.

A short encounter with the past

The oldest stock certificate was issued in favor of a Dutch company in 1606. The purpose of this company was to benefit from the spice trade between India and the Far East. During the 18th and the 19th centuries the trade of spices drifted to England when Napoleon reigned over the place. With the development of United States of America as a colony to British and Alexander Hamilton (the first US secretary of the Treasury) flourished the American Stock Exchange. Hamilton played a crucial role in encouraging the trading in the Wall Street and Broad Street in New York. The New York Stock and Exchange Board now popularly known as the New York Stock Exchange was organized by the traders of New York in 1817 when trade and commerce bloomed there.

A precise survey of the Western stock market

• The Wall Street- a place where the whole of 18th century trade and commerce took place, Wall Street is a recognized place across the globe. The street was termed as Wall Street since it ran alongside a wall that was taken as the northern boundary of New Amsterdam in 17th century.

The Wall Street is known for the J.P. Morgan’s million dollar merger that created US Steel Corporation, the ruinous crisis that resulted in Great Depression and the “Black Monday” of 1987.

• The NYSE or the New York Stock Exchange is perhaps the foremost and so the oldest stock exchange in United States that is believed to be born in 1792. The significant aspects related to NYSE include the Buttonwood Agreement when 24 stockbrokers and traders of New York signed this accord and established the New York Stock Exchange and Securities Board which is now recognized as the NYSE; the considerable swings that the NYSE saw during the 20th and 21st century; the hitting of the 100 and later even 1000 mark by the Dow around 1971 and the mark of 10,000 that the Dow scaled in 1999.

• NASDAQ is the National Association of Securities Dealers Automated Questions. It is an apparent or virtual stock market where all trading is done through the electronic media. NASDAQ, the global and the largest electronic stock market today was first established in 1971 in United States at the time when computers were not as developed as they are today and it was very difficult to compute. The main exchange of NASDAQ is in United Sates while its branches can be found in Canada and Japan and it is also linked to markets of Hong Kong and Europe. NASDAQ functions by purchasing and selling the over- the- counter or OTC stocks.

• AMEX-was discovered in 1842. The putative father of the institution is Edward Mc Cormick (the commissioner of SEC) who endowed it with its current name. It started its journey as the New York Curb Exchange and its name is factual. The AMEX in contrast to the NYSE operates with the small and more dynamic companies some of which even make it to the NYSE board.

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Most of us have heard of stock indexes, but have only a fuzzy idea of them at best. This article aims to clarify some of the basics of stock indexes — what they are and how they work.

What Is A Stock Index?

A stock index is simply an average price for a large group of stocks, either those on a particular stock exchange or stocks across an entire investing sector. Indexes are formed from stocks with something in common: they are on the same exchange, from the same industry, or have the same company size or location. Stock indexes give us an overall snapshot of the economic health of a particular industry or exchange.

Many stock indexes exist; in the United States the most well known are: the Dow Jones Industrial Average, the New York Stock Exchange Composite index, and the Standard & Poor 500 Composite Stock Price Index.

How Does It Work?

There are several ways to calculate an index. An index based solely on stock prices is called a “price weighted index.” This type of index ignores the importance of any particular stock or the company size.

A “market value weighted” index, on the other hand, takes into account the size of the companies involved. That way, price shifts of small companies have less influence than those of larger companies.

Another type of index is the “market share weighted” index. This type of index is based on the number of shares, rather than their total value.

Index As Investment Tool

Another huge function of indexes is that they can function as investment instruments in and of themselves. Mutual funds based on an index duplicate the holdings of the underlying index. Thus, if index A rises by 1%, the Index A Mutual Fund rises by 1%. This has the tremendous advantage of lower costs. Plus these index funds have been shown to generally outperform managed funds.

The Big Indexes

One of the best-known indexes in the world is the Dow Jones Industrial Average. It is a “price-weighted average” index composed of the stocks of 30 of the most influential companies in America. Some feel that 30 companies are not enough to form an accurate assessment for so influential a measurement, but it is reported around the globe daily nevertheless.

The Standard & Poor 500 Index is based on 500 United States corporations, carefully chosen to represent a broader picture of economic activity.

Beyond the United States, the most influential index is the FTSE 100 Index, based on 100 of the largest companies on the London Stock Exchange. It is 1 of the most important indexes in Europe. 2 other important indexes are France’s CAC 40 and Japan’s Nikkei 225.

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