Introduction to U.S. Stock Markets

1. What is a stock?

A share of stock is a fractional ownership claim on a public company. Buy one share of Apple (AAPL) and you own about 1 / 15,300,000,000 of Apple — its factories, patents, brand, $160B cash pile and every future dollar of profit. Companies issue stock to raise permanent capital that never has to be paid back; investors buy stock for two reasons: price appreciation (the business grows) and dividends (a slice of profits paid in cash).

"In the short run the market is a voting machine, but in the long run it is a weighing machine." — Benjamin Graham

Common stock vs preferred stock

• Common — what you normally buy. Voting rights, last in line if the company is liquidated, unlimited upside.
• Preferred — fixed dividend, paid before common, usually no vote, behaves like a bond.

2. NYSE vs Nasdaq vs OTC

Both NYSE and Nasdaq close at 4:00pm ET. Trades route automatically to whichever venue offers the best price under Reg NMS.

3. The big U.S. indexes

10-year stylized total return of the four headline U.S. indexes.

• S&P 500 (SPX) — 500 largest U.S. companies, market-cap weighted. The default benchmark professional money is measured against.
• Dow Jones Industrial Average (DJIA) — 30 blue chips, price-weighted (a quirky 1896 design). UnitedHealth swings the Dow far more than Apple does.
• Nasdaq-100 (NDX) — 100 largest non-financial Nasdaq stocks. Tech-heavy, growth-tilted.
• Russell 2000 (RUT) — 2,000 small caps. The "real economy" gauge.

4. Who is on the other side of your trade?

When you click Buy in your broker app, your order joins a stream of about 11 billion shares per day across U.S. equities. The cast:

• Retail investors — you. ~25% of U.S. volume since 2020.
• Mutual funds & pensions — Vanguard, Fidelity, CalPERS. Slow, large, benchmark-driven.
• Hedge funds — Citadel, Millennium, Renaissance. Long/short, levered, sophisticated.
• Market makers — Citadel Securities, Virtu, Jane Street. Always quote both sides, earn the spread.
• HFT firms — Jump, Tower, Hudson River. Microsecond arbitrage.
• Corporate buybacks — companies are the largest single buyer cohort most years.

5. Brokers, SIPC and account types

A broker is your gateway. The biggest U.S. retail brokers:

SIPC insurance

The Securities Investor Protection Corporation insures up to $500,000 per account ($250k cash) if your broker fails. SIPC does not cover market losses — only broker insolvency. Most large brokers carry additional Lloyd's of London "excess SIPC" coverage up to $50–150M.

Account types

• Taxable brokerage — flexible, fully taxable.
• Traditional IRA / 401(k) — pre-tax in, taxed on withdrawal.
• Roth IRA / Roth 401(k) — after-tax in, withdrawals tax-free.
• HSA — triple tax-advantaged when paired with a high-deductible health plan.
• 529 — college savings, tax-free for qualified education.

6. Market hours and circuit breakers

The exchange closes for ~9 federal holidays plus early closes the day after Thanksgiving and Christmas Eve. Index-wide Limit Up–Limit Down circuit breakers halt all trading at 7%, 13% and 20% S&P drops in a single day.

7. Order types you actually need

• Market — execute now at best price. Use only on large-cap, liquid names during regular hours.
• Limit — buy at or below X / sell at or above X. Default for everything you care about.
• Stop — becomes a market order if price crosses your stop. Risk-control tool.
• Stop-limit — becomes a limit order. Won't sell below your floor (so it may not fill at all in a crash).
• Trailing stop — stop that follows price up by a fixed % or $.
• OCO (One-Cancels-Other) — bracket a position with a target and a stop simultaneously.

Rule of thumb: never use a market order on a stock that trades less than 1M shares/day or outside 9:30–3:55pm ET.

8. Bid, ask, spread, slippage

The bid is the highest price someone will pay; the ask is the lowest someone will accept. The gap is the spread — your built-in cost of trading.

For AAPL the spread is ~$0.01 (0.005%). For an illiquid micro-cap it can be 5%. Slippage is the extra cost when your order is bigger than the size at the inside quote and walks up/down the book.

9. Settlement (T+1) and clearing

Since May 28, 2024, U.S. equities settle T+1 — one business day after the trade. The DTCC (Depository Trust & Clearing Corporation) nets all trades and moves the actual share entitlements between brokers. You don't see this; your broker shows you the trade as instantly final.

Practical implication: if you sell on Monday, the cash is "settled" Tuesday and can be withdrawn Wednesday. Day-trading with unsettled funds in a cash account triggers a good-faith violation.

10. Dividends, splits and corporate actions

• Cash dividend — quarterly cash payment. Four key dates: declaration → ex-dividend → record → payment. You must own the stock before the ex-date to receive the dividend.
• Stock split — 4-for-1 split = 4x as many shares at 1/4 the price. Cosmetic, total value unchanged.
• Reverse split — common in struggling stocks to stay above the $1 listing floor. Often a yellow flag.
• Spin-off — parent distributes shares of a subsidiary to existing holders.
• Buyback — company purchases its own shares, shrinking the share count.

11. Reading a stock quote and 10-K

Every stock page on this site shows the same building blocks you'll see on any professional terminal: last price, day change, day range, 52-week range, market cap, P/E, EPS, beta, dividend yield, average volume. The 10-K (annual report) and 10-Q (quarterly) filed at sec.gov/edgar are the primary source documents. Read at minimum: Item 1 (Business), Item 1A (Risk Factors), Item 7 (MD&A).

12. Your first 30-day learning plan

1. Days 1–5: Open a brokerage account. Fund $500. Set up 2FA with a hardware key (see Cybersecurity module).
2. Days 6–10: Buy one share of a broad ETF (VTI or VOO). Watch how the order fills.
3. Days 11–15: Read one 10-K (try MSFT — well written). Identify revenue mix, gross margin, free cash flow.
4. Days 16–20: Complete the Technical Analysis module.
5. Days 21–25: Complete the Fundamental Analysis module and value one stock yourself.
6. Days 26–30: Write your Investment Policy Statement: goals, allocation, what you'll do in a 30% drawdown. Pin it to your screen.

Money is not made by knowing more — it's made by acting on a written plan you'll actually follow.