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How Does It Work?

Did you ever hear on the television or on the radio something like this: “The DOW rose 111 points today in heavy trading”? Do you know what they mean by the DOW? And what are these points? Well it works like this. The DOW Jones industrial average is the most common financial index in the world. It is also the most widely watched. It is a list of 30 of the biggest, most-respected companies in the world. These are the giants of the industrialized world. The General Motors, the IBMs the AT&Ts and the Disneys. The points are actually dollars and cents, all added together. In other words, if you added up the face value of those 30 companies’ stocks on that day, you would get a very large number. Recently the DOW just passed the 10,000 level. That simply means that if you took the DOW 30 companies’ stocks and added them together they would total 10,000 dollars.

NOTE: If you add them up yourself you will notice that the number falls FAR short of 10,000 dollars. Why? Because you have to take into account how many times a company has “split” it’s stock. When you see Disney at 30 dollars that really isn’t true. It has split about 7 times in it’s history! That makes Disney about a $2000 component of the DOW!

The next biggest index that is closely watched is the S&P 500, which stands for the Standard and Poor’s 500-company index. This is simply a cluster of 500 good companies from various sectors of the market, and is a much-wider scope of what the market overall is doing. When all 500 of them are in the toilet for the day, you can well imagine that it isn’t a very good day on Wall Street! Likewise, when the S&P 500 gained a bunch of points for the day, you can guess that it was a pleasant trading day on Wall Street.

Most of your trading will be in stocks that are listed in the NYSE, S&P or the NASDAQ, but other exchanges will come into play as you learn what options are, or maybe even bond futures. That will depend on how in-depth you will wish to go in this game.

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