Stock Market for Beginners | Basics 101

This is a basic guide on how to invest in stocks. After reading this, you should be able to understand the basic and important concepts and themes in the financial markets. You should also be able to watch CNBC or read the financial section of the newspaper and understand what's going on.

We will go over basic terminology that is used like P/E ratio, market cap and liquidity. I will also give an overview of the major stock exchanges as well as give a brief description of the major indices often used as indicators of the US economy. I will also discuss some of the ways to practically invest using an online brokerage account, a stock broker or financial advisor.

This first piece of advice I would offer a beginner is this: keep it simple. You don't have to have tons of knowledge or skills to invest well. You just need some basics and common sense strategies to get you started.

NYSE - The New York Stock Exchange is the largest stock exchange in the world and it's the main one in the US.

NASDAQ - this is the other major stock exchange in the US. Technology companies especially like to use this exchange to be listed on.

Stock - a stock represents part of what you own when you buy a share in a company. The stock market allows you to essentially co-own companies with millions of other owners.

Share Price - this is the price at which a single share in a company is selling for. I can currently buy one share of Google for $475.

Stock Broker - unless you have a Series 7 license and work for a financial institution, you will not be able to buy stocks for yourself. You will need a stock broker, online brokerage account or a financial adviser to make that trade on your behalf. We'll talk about that in more detail later.

Market Cap - also known as the market capitalization, refers to the size of a company. It's calculated by taking the number of outstanding shares and multiplying that with the share price. The different market cap sizes gives an indication of risk and return potential. A small cap stock has greater potential for high returns, but with a lot more risk than a large cap company.

P/E Ratio - this is the price per earnings ratio. It gives you an indication of how much earnings a company is producing in relation to how much a share of the company costs. Businesses is about making money. This tells you how well a particular company is making money relative to the stock price.

Liquidity - this refers to how liquid or how fast someone can buy or sell a particular stock. If there aren't many shares in a particular stock changing hands on any given day, that means that stock is not liquid. That means if you own that stock, it might be difficult for you to get rid of it.

Volatility - its how much the price of a particular stock or the entire stock market is fluctuating. Volatility is a sign of risky environment. Traders love volatility because they play on the ups and downs to make profits.

Volume - this is how many shares traded in any given time period. You will generally see high volume on days where there is high volatility in the market or when big news about a stock or the economy comes out.

Technical Analysis - since this is a guide to stock market investing for beginners, I won't go into this in detail. Suffice it to say, this refers to looking at and understanding price chart patterns of a stock.

Fundamental Analysis - this refers to understanding the inherent value of a company and it's business. This looks at the company's business lines, revenue sources, financial statements and earnings to see what the value of a company is.

There are several ways to buy and sell stocks. And increasing common way is to set up an online brokerage account with a broker like Ameritrade, Etrade or Scottrade. They all offer very competitive commissions so you can trade stocks cheaply. They also offer online tools for research and to manage an investment portfolio.

You can also use a traditional retail stock broker and call up a human being at an office like Merrill Lynch or Charles Charles Schwab. This might be a great option in the beginning. They will personally go through your options with you and will guide you through this process. And it might help to have a real human being hold your hand in the beginning.

You can also use fee-based financial advisers like Edward Jones and American Express Financial Advisers. They have a Series 7 license to be able to buy and sell stocks on your behalf. However, they aren't paid a commission when they execute a trade for you like traditional retail brokers. That means they don't have a financial incentive for you to be active in the stock market, which means they are more likely to give you more objective advice.

Here are some great stock market tips for beginners to get you started. First of all, find an investment strategy by reading about the strategies of those who are really good at investing in the stock market.

Look at guys like Warren Buffett and learn how he has successfully used value investing to amass a fortune. His principles of buying good businesses with solid business models that are undervalued by the market is golden if you learn how to do that.

The best place to find different investing strategies is to look at the investing philosophies of some of the best mutual funds out there. Many of them tell you what principles guide a particular fund on their website. It'll give a good sense of what you like and will work for you.