Wall Street 101

What is Wall Street?

Yes, it actually is a street, but most of the time when we talk about Wall Street, we’re talking about the U.S. Stock Market in New York City. The New York Stock Exchange is the largest stock market in the world. It is located at 11 Wall Street, Manhattan, New York. The New York Stock Market floor is sometimes depicted as a place where stock brokers wave around pieces of paper, but I promise you it is a lot less crowded today. Now, the New York Stock Exchange floor has many computers which are used to buy and sell stocks. Physically trading papers is unnecessary. 

But what are those pieces of paper that we see in movies or television shows? Those are stocks, which are portions of a company that people can buy. Companies allow other people to buy pieces of their company in order to raise money to operate their business. Depending on the success of the company, these stocks can sell from pennies to thousands of dollars for just a small percentage of ownership of the company. 

How’s the Dow?

The stock market is analyzed mainly by three major indices: Dow Jones, NASDAQ, and S&P 500. Each of these indices is made up of companies and their stocks, and the performance of each stock within these indices creates a good reflection of how our economy is doing.

The Dow Jones Industrial Average is made up of the 30 biggest public companies in the U.S. such as Disney, Walmart, Apple and Coca Cola.  It was founded by an editor of the Wall Street Journal, Charles Dow, and is the second oldest stock market in the U.S. This stock index is unique because it is a price-weighted stock, meaning that every company stock makes up only a piece of the average stock price for that index. With only 30 companies ranging from big to small, this can pose an unfair advantage for bigger companies as they can sell their stocks for a higher price and for smaller percentages. Nevertheless, the Dow Jones index remains one of the most widely recognized and followed stock indices.

The NASDAQ Composite includes more than 3,800 companies and corporations ranging from big to small. This index is usually made up of high-tech and information companies such as American Airlines, Mattel, Inc., and Shutterfly, Inc. This index includes many foreign companies that trade in the U.S. 

The S&P (Standard and Poor) 500 Index is the most common index in the U.S. It reflects the stock equity of 500 U.S. based-companies, with a market share of millions or billions of dollars. Companies included in the S&P 500 represent auto, energy, and healthcare sectors, as well as many other industries. Although it is used to analyze the U.S. stock market, the S&P 500 also includes companies headquartered in other countries. 

It is important to realize that even though there are many other stock markets in the U.S.  and around the world, these indices are the most commonly used and are thought to be the best indicators of the U.S. economy because they include the biggest companies in the country as well as important commodities like oil, gold and cotton.

 

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