Buying & Selling Stocks Buying & Selling Stocks Mrs. Wilson: Career & Financial Management

The Securities MarketThe Securities Market

• Consists of channels through which you can buy an sell securities:– Stocks– Bonds

• Trading Agent– You need a trading agent to buy and sell common

and preferred stock

Securities ExchangeSecurities Exchange

• A marketplace where brokers who are representing investors meet to buy and sell securities

• The largest organized exchange in the US is the NY Stock Exchange (NYSE)

• The smaller American Stock Exchange (AMEX) is also in NY City

• Regional exchanges are located throughout the country

NYSE BuildingNYSE Building

• Trading Floor– Where stocks are bought and sold– Two-third the size of a football field– Around the edge are the booths with computer

terminals that are open at both ends • There is room inside each booth for a dozen or more floor

brokers

• Floor Brokers– Buy and sell stocks on the exchange

Over-the-Counter Market (OTC)Over-the-Counter Market (OTC)

• When securities are bought and sold through brokers but not through a stock exchange, the transaction is over-the-counter (OTC)

• It is a network of brokers who buy and sell the securities of corporations that are not listed on the securities exchange

• They do not deal face-to-face

• Trades are completed by telephone and a computerized system displays current price quotations on a terminal in the broker’s office

NASDAQNASDAQ

National Association of Securities Dealers Automated Quotation System

• This is the electronic quotation system for brokers operating in the OTC market

• Acronym

• To be listed with NASDAQ, companies must have issued at least 100,000 shares of stock worth $1 M.

Bull & Bear MarketsBull & Bear Markets

• Bull Market– Prolonged period of rising stock prices and a general feeling of investor

optimism– Confidence about how the country is doing also servers to drive up

stock prices

• Bear Market– Prolonged period of falling stock prices and a general feeling of investor

pessimism– Stock prices may fall 20 percent or more– Bear markets are usually short and savage

• Average Bull Market often lasts three to four times as long as a Bear Market

Investing StrategiesInvesting Strategies

• Speculator/Day Trader– Buying and selling stock within a short period of time.

• Investor– Holding your investment for a long period of time (a year or

more)

Short-Term TechniquesShort-Term Techniques

• What is the goal?– To buy a stock that will soon increase in value

• Buy on Margin– Borrowing money from your broker

• You must deposit a minimum of $2000 in cash or eligible securities (collateral)

Buying on Margin ExampleBuying on Margin Example

• You want to buy 100 shares of XYZ Corporation at $20/share ($2,000)

• You could use $1,000 from your margin account and borrow $1,000, with interest, from your broker

• This strategy is called leverage or the sue of borrowed money to buy securities

• When you sell the stock, you repay the loan with interest

Short SellingShort Selling

• Selling stock borrowed from the broker that must be replaced at a later time

• You borrow a certain number of shared from the broker

• You then sell the borrowed stock, knowing that you must buy it back later and return it to the broker

• You are betting the price will drop, so that you can buy it back at a lower price than you sold it for

AssignmentAssignment

• Work in class together to complete page 121 in your workbook– Activity 12.3 Buying on Margin– Activity 12.4 Selling Short