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This lesson is going to provide you with an overview and answer some common questions about the US stock market!

 

What is the stock market?

Also know as the stock exchange, the stock market is essentially an aggregation of buyers and sellers trading stocks (also know as shares), bonds and other types of securities (asset types). Stocks for instance, represent ownership claims on businesses and so if you were to buy one stock of a publicly traded company like Coca-cola, you'd have an ownership stake in that company - how cool is that!
 

How many stock exchanges are there in the US?

There are 3 main stock exchanges in the US (that you’ve probably heard about on the news, in books or in passing) and they are:

  • The NYSE a.k.a The New York Stock Exchange.
  • The NASDAQ a.k.a The National Association of Securities Dealers Automated Quotation System. (Also the first electronic stock market).
  • The NYSE American, formerly known as the American Stock Exchange.
 
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All 3 are based out of New York (NYC is the major financial hub in the country), and while there are other smaller stock exchanges, these are where most people buy and sell stocks and other securities. The stock market has also been around for well over 100 years - so there’s a lot of history here!


What about the DOW?

Have you also heard about the DOW?
Wondering why I don’t mention it as a stock exchange?

Well that’s because it isn’t!
The Dow is actually an index and it’s really called the Dow Jones Industrial Average or DJIA.


So what is an index?

Wikipedia has a great definition of what an index is: “A stock index or stock market index is a measurement of a section of the stock. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.”

In simple terms, a stock market index is a benchmark or performance measurement for your investments and is useful when you compare the historical and current performance of the index to the performance of your current investments.

 

What are the major indexes in the US?

The major stock market indexes that everyone pays attention to are:

1. The DJIA a.k.a The Dow Jones Industrial Average

This index represents (or indexes) the average price change of the stock of 30 large companies from various industries in the United States.
 

2. The S&P 500 a.k.a The Standards & Poors 500 index

This index represents the stocks of approximately 500 large companies in the US that have their common stock listed on the NYSE or NASDAQ and they make up 75% of the US stock market.


3. The NASDAQ Composite

This index represents the stock of over 3,000 companies primarily in technology but also includes stocks from the financial, industrial, insurance and transportation industry both in the US and internationally.
 

4. The NASDAQ 100

This index represents 104 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ stock exchange.

 


Want to learn about the other indexes?

Here’s a list of all the different indexes in the US if you are interested!
 

It is all starting to tie together now? I bet you’ve had  a couple "ah ha" moments as you've made progress through this course. Let's keep going.