An Introduction to Stock Trading Part 1

As I have previously stated I am very interested in the Stock Market at the moment so I have decided to compile an introduction to the Stock Market in the hopes that it may help someone who is in the position I was in last year.

I hope someone may find it useful, if there is anything you think I should include then please let me know so I can research it.

Thanks.

The first part is just a few definitions of terms, phrases and ratios

Stock/Share

I guess the first thing to define is what is a Stock? There are a few different types of stocks but for the basis of this guide I will only look at Ordinary Shares, which are the most regularly traded. A stock is basically a part of a company, how much of the company depends on how many Stocks are in circulation. A Limited Company owned by an individual still has a Stock but there is only 1 which covers 100% of the company if there were two directors then each share would cover 50% and so on. With the larger PLC (Publicly Limited Company) the volumes of shares is massive. Lloyds Banking Group as an example have 71,368,000,000 shares in circulation so a single share gives control of 0.0000000014% of the company. When the company holds meetings and decisions need to be made then every shareholder is entitled to a vote equal to the percentage of the company owned.

Ticker (EPIC) Symbol   

The ticker symbol of a stock is the abbreviation code by which it is traded, It is called a ticker symbol as a historical throw back to when the prices were released on a giant ticker tape. The symbol comprises two elements the first one being the name of the company and the second being the exchange that it is registered on. The first part of the symbol can include letters and numbers and is usually up to 4 characters. The market identifier is added to the end of the Ticker after a "." a company can (But doesn't have to) use the same code on different exchanges.

i.e. BP PLC has the following ticker symbols.
BP.L                 London Stock Exchange
BP                    NYSE
BPE.F              Frankfurt Stock Exchange
Obviously in this situation using BP alone would not be a unique identifier. It is good to know the ticker symbol of Stocks that you are interested in as it will remove the need to search through lists (It is also useful to always add the ".L" onto the share when looking for UK shares as otherwise many websites will assume you are after US securities.


Market Capitalization

The Market Cap of a company is taken by taking the share price and multiplying it by the number of shares, in essence this is the cost to purchase the company (Assuming everyone was willing to sell) so for Lloyds Banking Group with a share price today of  83.16p the Market Cap would be 83.16p X 71.368M shares which means that Lloyds as a company are currently worth £59,349,000,000. The market Cap is the default measure of a companies worth (At least its worth according to the stock market) and is a key metric of listed companies and it is market capitalization that is used to work out the constituents of share indexes such as the FTSE 100 (The 100 largest companies on the London Stock Exchange)