Stock Market Basics Tutorial [INFOGRAPHIC]

Stock Market Basics Tutorial [INFOGRAPHIC]

Supply and demand Earnings

Price movement Market cap

What drives stock price

On the most fundamental level, supply and demand in the market determine stock price.

Publicly reported earnings are the profits a company makes. This along with earnings projections are major drivers of investor activity.

Price movement reflects what investors feel a company in worth now and in the future.

The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding.

The price-to-book ratio (P/B) The peg ratio

Price-to-earnings ratio

Dividend yield

Evaluating stock

The price-to-book (P/B) ratio represents the value of the company if it was liquidated and sold today.

Price earnings growth ratio incorporate the historical growth rate of the company's earnings.

P/E ratio can be thought of as how long a stock will take to pay back your investment if there is no change in the business.

Dividing a stock's annual dividend by it's price represents the interest on your money with the additional chance of growth through appreciation of the stock.

What about penny stocks?

Penny stocks are common shares of small public companies that trade at low prices per share and can produce major profits for savvy investors willing to take on additional risk. Penny stocks may not have earnings or dividend yields as stock price drivers.

More speculative than other securities, so they're lower priced and have large potential for rewards if the company's product is a hit.

Learning to recognize patterns of promotion and price movements is key for shorting penny stocks.

When evaluating penny stocks, contract wins with bigger companies and new product announcements that could drive earnings later are keys to hone in on.

When it's time to invest

Determine your level of risk and build a portfolio that suits your circumstances and timing. Using a combination of valuation methods provides a fuller picture of the real value of a stock. When it comes to background information and researching a company, day trading software is key, but the news and your own research should remain priorities. Stick to a plan and don't be afraid to cut losses quickly.

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