Jul 24 2009
Stock Market - Stock Money Market - What’s the Diff
I always thought that the Stock Market and the Money Market were the same thing. After all, in the Stock Market shares are bought with money, right? So you can talk about the Stock Market, the Money Market, or the hybrid Stock/Money Market or, taking away the slash, the Stock Money Market. Money is traded back and forth in the market so it is also a Stock Money Market, right? Wrong! I’ve discovered that in the financial industry you have to be careful with your assumptions.
So what is the Stock Market, well it is the market where stocks are traded. Stocks are typically a longer term investment. You buy stock and you wait around and watch the stock market until the price goes up (hopefully). Some stocks may offer dividends but the “buy and wait around” idea still holds.
The money market on the other hand consists of instruments that have high liquidity and short duration. Let me explain. High liquidity just means that they can be turned into cash very quickly. Short duration - well that should be a no brainer - but for those of us who invariably get confused when it comes to the Stock Money Market - it just means that the instrument doesn’t last very long.
What do I mean by instrument? Well, I mean the actual thing that you are using to make or borrow money. In the case of the Money Market the types of instruments that are used are CD’s (you’ve heard of those), bankers acceptances (whatever that means), treasury bills (common! you know this one!), etc. These are all easily turned into cash. You would issue one of these if you’re trying to get money fast. You would buy one of these if you were looking for a quick and safe place to park your money (safe meaning that you will not be at the whims of the fluctuating stock market but you certainly won’t get rich).
So if you have money and you want to do something with it you can go to the Stock Money Market. There you have your choice of high risk, high return or low risk, low return. In the Stock Money Market, you can either study out the varied companies and/or instruments and invest wisely, or you can watch the news and reports and make irrational decisions based on a very short term focus. This is called being a day trader. The Stock Money Market is there for you, all you need to do is dive in but proceed with caution.
