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Today, the New York
and the American Stock Exchanges, have been joined by the NASDAQ, and
hundreds of local and international Stock Exchanges, that all play a
part in the national and global economy. Many stocks that were deemed
not good enough for the NYSE, were traded outside on the curbs. This
so called "curb trading," has now become the American Stock Exchange (AMEX). On
October 19, 1987 the stock market plunged 508 points, or 22 percent of
the total market value. It was the worst crash, since 1927 which
signaled the Great Depression. What brought about this crash, why such
a drop in such a little time? One major reason for the crash was fear.
Fear of a correction. Fear of a drop. Fear of being to late to get
out. The 1980s had brought large stock increases, people had been
making fortunes on the huge surges in the stock market. People began
to fear that the market wouldn't be able to go up forever, and
eventually it would fall, and create what is called a correction. The
fear began to accumulate around October 15th, when The Wall Street
Journal published an article entitled, "Stocks May Face More than a
Correction." The morning of 1987, began with a quick loss of around
150 points. Although, the market did rebound a little before noon, the
landslide had begun, and the market was losing too fast to hold back.
Many of the specialists, whose job it is to negotiate the trades
between sellers and buyers, were going out of business, because the
rules state that they must purchase stocks that cannot be sold. In the
end, the market plunged, and after the closing bell rang in the NYSE,
there was silence between the brokers. People were speechless, many
broke. The most basic order is the market order, where
you just ask the broker to buy or sell your stocks at the best price
he can get his hands on. Another type of order which takes more
research and predicting on your part is a limit order. In a
limit order, you tell the broker to trade only when the stock is at a
certain price or better. A stop order is an order which can
save you from extreme loss. In a stop order, you tell the broker to
sell your shares if the stock drops too low, and you tell him the
price not to let it drop below.
Why does the stock market go up and down? Theses fluctuations occur
partly because companies make money, or lose money, but it is much
more involved than that. A stock is only worth what someone will pay
for it. Usually, if a company makes a lot of money, its value rises,
because people are willing to pay more for a company's stock if the
company is doing well. There are many other factors that affect the
value of stocks. One example is interest rates, or the amount of money
you have to pay a bank to loan money, or how much it has to pay you to
keep your money in their bank. If interest rates are high, stock prices
generally go down, because if people can make a decent amount of
money, by keeping their money in banks, or buying bonds, they feel
like they should not take the risk in the stock market.
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