When you buy stocks, you have to buy them in “lots,” which is a unit of 100 shares. You can buy fewer, but then you get charged service fees. So if you ever buy shares of Microsoft ($28.47/share as of this weekend), you have to shell out at least $2847 (plus the broker fees) to get 1 lot of MSFT. Although most stocks are 100 shares per lot, some stocks are not. For example, Berkshire Hathaway, which is currently $123,970/share, trades at 1 share per lot, so you have to shell out at least $123,970 (plus the broker fees) to buy 1 lot of BRK-A. The darn stock never split in its history. Crazy, huh?
When you buy the stock, you can buy it from NYSE (New York Stock Exchange), AMEX (American Exchange), Nasdaq, or a number of other smaller exchanges in the States or small-and-large exchanges over the world. A stock like MSFT can be purchased only from Nasdaq in the U.S. A stock like BRK-A can be purchased only from NYSE. But some stocks are listed in more than one exchange, which means you can purchase the stocks from one exchange and sell it in another to make money, if you time the sale right. You can't really do that these days of electronic exchanges, though.
When a stock is sold in NYSE and AMEX, it is known as a “listed stock.” NYSE and AMEX are exchanges, whereas Nasdaq is technically not (it's called an over-the-counter, or OTC, market), though it sort of is. The thing that sets Nasdaq apart from NYSE and AMEX is that Nasdaq is a pure electronic exchange, whereas NYSE and AMEX are people-driven. Don't get me wrong — you can buy NYSE stocks online — but it goes through the wires to someone standing on the NYSE exchange floor who clicks “confirm” on his computer screen at the same time accepting exchanges happening in front of him.
This person standing on the exchange floor is called a “specialist.” He'll buy your stocks if you try to sell it but there's no one else who will buy it. He'll also sell stocks if you try to buy some but there isn't anyone who wants to sell some. This guarantees that you can cash your shares whenever you want to, which gives confidence that your stocks are worth something. The specialist is hired by the company that sells its stocks, and is licensed by the exchange, which is how they can buy/sell stocks even if they're losing money on the sales, and sell stocks even if there's no more stocks to sell. There aren't these specialists on the Nasdaq, so there is no guarantee of cashability (they call this “liquidity”) of your stocks, which would make you think it dangerous to buy/sell stocks on the Nasdaq, but in practice it's not really a problem because Nasdaq (as well as NYSE and AMEX) screens marketability of a company before allowing them to be on their market.
If too many people try to sell a stock or a set of stocks, it can drive down the company's stock prices unreasonably below its fair market value or bring about a confusion to the market. For this reason, exchanges reserve the right to halt a stock in the event that the stock loses too much of its value. Halting a stock essentially prevents it from being traded across the world; any trade that takes place outside of the main exchange while the stock is halted can cause the firms involved in the trade to be fined.
There are two types of stocks you can buy. One is the “common stock” — the type of stock that is most… common =.=' This kind of stock grows in value over time (hopefully), so you can sell it later for more money. This kind of growth value in stocks is called the “capital gain.” You may have heard the term, “maximize your capital gain!” — when they say that, what they want you to do is buy stocks that gives you the most money when you sell it. Common stocks is also good because it gives you the power to vote on the company's major issues — whether to split the stocks, who to vote for the board membership, whether to merge with another company, etc.
The other type of stock you can buy is the “preferred stock,” which gives you money every quarter based on the company's earnings. This money is called “dividend.” The common stock usually also gives you dividends, but it's not guaranteed, and it's usually not as much. But preferred stocks aren't always available, and preferred stock holders can't always vote on things, so it's worth less than the common stocks, and people buy preferred stocks more for the dividends than for the capital gain. Preferred stock holders also get paid before the common stock holders in case the company goes belly-up, if there is any money left. There's also a few other types of stocks but it's usually just slight variations on the above-mentioned two types of stocks.
In addition to being able to buy stocks, you can also sell stocks. You can sell stocks even if you don't have any stocks to sell. This is possible because your stock broker (who buys/sells stocks on your behalf — you have to be licensed to buy/sell stocks directly) can have someone lend you stocks to sell. Of course, that means you have to pay interest on the value of the stock, and pay it back later by buying the stocks back. You also have to pay for any dividends that the company would have given the lender out of your own pocket. It's kind of a lose-lose situation, but it can make you money if you know for sure that the stock is going to go down in value. Most people don't do this unless they really know what they're doing. Selling stocks you don't have is called a “short sell” (the opposite, selling stocks you do have, is called a “long sell”).
So I've asked around and it seems like normal people don't really go into stocks directly these days because the market is too competitive these days. They seem to just put their money in mutual funds (discussion for another time) and let the traders figure it out for them. Maybe that's the thing to do but… I donno — if you think some stock will go up in a couple years it's pretty safe to still do investment. But the market seems to be dead for the day-traders (people who buy/sell within a day) because it takes milliseconds to see the market data and trade using my company's trading software (Fidessa) used by huginormous trading companies, but it can take minutes to see the market data and make trades using your home computer and Internet, which eventually goes through systems like ours anyway so by definition day-traders that trade from home can never be quicker than the professional traders in day-trading.
You sometimes hear that “Nasdaq is up XX points.” That means that the weighted-average share of the Nasdaq is up $XX. And when they say that the “Dow Jones Industrial Average” or “S&P 500 Index” or such in the news, they're the weighted-average prices of some hand-picked stocks in NYSE and/or Nasdaq. Dow Jones Industrial Average refers to a set of 30 stocks hand-picked by Dow Jones & Company. S&P 500 Index refers to a set of 500 stocks hand-picked by Standard & Poors. They all serve different purposes as the market indicator, but when they say that the “market is up/down,” they're talking about Dow Jones.
