Stocks can be bought and sold by anybody who has money. Knowing the basics will help people understand how stock trading works despite the process’s own specialized vocabulary. People who have knowledge about stock trading are the ones who are most likely to be successful in the investment industry.
Most stock trading activities are done through an intermediary called a broker. Brokers, who take and execute orders from the investors, can also offer investment advices and analyses to their clients. Such brokers are called full-service brokers and they charge a relatively high commission. The types of brokers that do not offer investment advices to their clients are called discount brokers. Investors who wish to save more money usually hire discount brokers because they charge less commission.
Online trading and broker-assisted trading are two of the most commonly offered services by brokers. There are some brokers who use an Interactive Voice Response System for placing orders via telephones and a Wireless Trading System for making orders via web-enabled cellular phones or other handheld devices.
There are some brokers who use their own proprietary software for placing online orders while some give their website passwords for accessing order departments. Brokers allow their clients to track the stock market movements by offering a variety of charting options. The analysis software provided by brokers may be included in their services either for free or for an extra fee.
Types of Orders
The orders made when buying or selling stocks can be classified into different types. An instruction to buy or sell a stock at the current market price is called a “market order.” This order is usually executed near the quoted price at the time of the order was made. There may be a difference between the actual transaction and the quote if there is some inactive trading of stocks or rapid fluctuation of prices.
An expectation of stock price movements that leads to the interest of buying or selling stocks at a certain price above or below the current price initiates the placing of either a “stop order” or a “limit order.” A stop order instructs the broker to trade at a certain stock price, while a limit order instructs the broker to trade at a specified stock price or something better.
Stop orders, which help in limiting losses and protecting profits, become effective when the market hits the stop price. Because the stocks are traded at market price after they become active, brokers who are given stop orders are allowed to trade above or below the stop price. Limit orders, on the other hand, may not be placed at all even if the market reaches the limit price. The fast movement of the market may not provide enough time to execute the order before the price falls out of the limit price range.
For example, an investor buys a share of Bell Canada Enterprises (BCE) at $50 and put in a stop order of $45. If the BCE stock price falls to $45, the stop order will become effective and the stock will become available at market price. Conversely, if an investor buys BCE for $60 and put in a limit sell, then his stocks will be sold at a profit only when the price rises to that level. The investor can also buy BCE with a limit buy order for $45 to allow him to possibly buy the stock at a price that is less than the current market price. If the price doesn’t fall to the limit buy price, however, the investor cannot buy that stock.
All orders can be placed as either “good ‘til canceled” (GTC) or “day order.” A GTC order will remain in effect until it is canceled but a day order will remain in effect only until the end of the current trading day. Stocks are commonly traded in multiples of 100 that are called “round lots.” Trading other amounts of stocks, which is called an “odd lot,” is also possible. Trading software can handle either type of orders but odd lot orders are considered to be more difficult to fill than round lot orders.
Tuesday, 13 September 2011
Stock Market through Technical Analysis, Indicators and Patterns
An untrained eye, when glancing at stock market charts, will only see random movements from one day to the next. For trained analysts, these movements are patterns that they can use to predict the future movements of the stock prices. There are over a hundred different indicators and patterns that can be applied to technical analysis. There is no such thing as a single reliable indicator but investors can be quite successful when it comes to predicting price movements.
Patterns
The Cup and Handle is one of the most popular patterns in stock market price movements. The cup represents the movement of the prices that starts relatively high then dips quite low and comes back up. The prices level out for a period before making a breakout. This period, which indicates a sudden rise in price, is represented by the handle. Buying on the handle usually generates good profits.
The bearish pattern that indicates the substantial fall of prices after a dip and a rise is called Head and Shoulders. This pattern starts with a peak called the first shoulder that is followed by a dip and a higher peak called the head. It is followed again by a dip and a rise that is now called the second shoulder.
Indicators
Moving Average
The moving average is the most popular stock price movement indicator. It shows the average price over a period of time. The most common averages used in this indicator are 20, 30, 50, 100, and 200 days. For a 30-day moving average, the closing prices for each of the 30 days are added before they are divided by 30. Longer time spans are considered to be less affected by the daily fluctuation of prices. A moving average is plotted as a line on a graph of price changes. Prices that fall below the moving average have a tendency to keep on falling while those that rise above the moving average have a tendency to keep on rising.
Relative Strength Index
The relative strength index (RSI) is an indicator that uses a comparison between the number of days a stock finishes up and the number of days it finishes down. It is calculated for a certain time span that is usually between 9 and 15 days. The calculation of the RSI starts off by dividing the average number of up days by the average number of down days. The quotient is then added to one and their sum is divided by one hundred. The result is then subtracted from 100 because the RSI is expressed in a number that is between the 0 and 100. An overbought stock that is due for a fall in price can have an RSI of 70 or above. An RSI that is below 30 indicates a stock that may be oversold. RSI numbers are not absolute and they can vary depending on whether the market is bearish or bullish. An RSI that is charted over long periods of time has the tendency to show less extreme movements. A look at the historical charts over a period of a year or so is one way of comprehending how a stock price moves in relation to its RSI.
Money Flow Index
While the RSI is calculated by following stock prices, the money flow index (MFI) is determined by taking into account the number of traded shares and the prices of the stocks. Like the RSI, the MFI range is from 0 to 100. An MFI of 70 indicates selling while an MFI of 30 indicates buying. When charted over longer periods of time, the MFI can be a more accurate indicator.
Bollinger Bands
Bollinger bands are indicators that are plotted as a group of three lines. The upper and lower lines of the Bollinger bands are plotted according to the volatility of the market. A volatile market is represented by a wide space between the lines. The lines come closer together as the volatility lessens. The simple moving average between the two outer lines is represented by the middle line. A movement of prices closer to the lower band is a strong indication that the stock is oversold and that the price will increase soon. As prices rise to the higher line, the stock becomes more overbought that its prices will begin to fall. Investors use Bollinger bands to confirm the credibility of other indicators. Skilled technical analysts will always use a couple of indicators before making a decision of whether to trade a particular stock or not.
Patterns
The Cup and Handle is one of the most popular patterns in stock market price movements. The cup represents the movement of the prices that starts relatively high then dips quite low and comes back up. The prices level out for a period before making a breakout. This period, which indicates a sudden rise in price, is represented by the handle. Buying on the handle usually generates good profits.
The bearish pattern that indicates the substantial fall of prices after a dip and a rise is called Head and Shoulders. This pattern starts with a peak called the first shoulder that is followed by a dip and a higher peak called the head. It is followed again by a dip and a rise that is now called the second shoulder.
Indicators
Moving Average
The moving average is the most popular stock price movement indicator. It shows the average price over a period of time. The most common averages used in this indicator are 20, 30, 50, 100, and 200 days. For a 30-day moving average, the closing prices for each of the 30 days are added before they are divided by 30. Longer time spans are considered to be less affected by the daily fluctuation of prices. A moving average is plotted as a line on a graph of price changes. Prices that fall below the moving average have a tendency to keep on falling while those that rise above the moving average have a tendency to keep on rising.
Relative Strength Index
The relative strength index (RSI) is an indicator that uses a comparison between the number of days a stock finishes up and the number of days it finishes down. It is calculated for a certain time span that is usually between 9 and 15 days. The calculation of the RSI starts off by dividing the average number of up days by the average number of down days. The quotient is then added to one and their sum is divided by one hundred. The result is then subtracted from 100 because the RSI is expressed in a number that is between the 0 and 100. An overbought stock that is due for a fall in price can have an RSI of 70 or above. An RSI that is below 30 indicates a stock that may be oversold. RSI numbers are not absolute and they can vary depending on whether the market is bearish or bullish. An RSI that is charted over long periods of time has the tendency to show less extreme movements. A look at the historical charts over a period of a year or so is one way of comprehending how a stock price moves in relation to its RSI.
Money Flow Index
While the RSI is calculated by following stock prices, the money flow index (MFI) is determined by taking into account the number of traded shares and the prices of the stocks. Like the RSI, the MFI range is from 0 to 100. An MFI of 70 indicates selling while an MFI of 30 indicates buying. When charted over longer periods of time, the MFI can be a more accurate indicator.
Bollinger Bands
Bollinger bands are indicators that are plotted as a group of three lines. The upper and lower lines of the Bollinger bands are plotted according to the volatility of the market. A volatile market is represented by a wide space between the lines. The lines come closer together as the volatility lessens. The simple moving average between the two outer lines is represented by the middle line. A movement of prices closer to the lower band is a strong indication that the stock is oversold and that the price will increase soon. As prices rise to the higher line, the stock becomes more overbought that its prices will begin to fall. Investors use Bollinger bands to confirm the credibility of other indicators. Skilled technical analysts will always use a couple of indicators before making a decision of whether to trade a particular stock or not.
Comprehending the Stock Market through Technical Analysis
The art and science of examining stock chart data and predicting future stock market movements is called technical analysis. This style of analysis is used by investors who are often concerned about the nature and the value of the companies where they trade their stocks in. The holdings are usually short-term since the investors drop the stocks once they reach their projected profit.
The belief that stock prices move in predictable patterns is the basis for technical analysis. The factors that influence the movement of the price are supposedly reflected in the stock market with great efficiency. These factors include company performance, economic status, and natural disasters. The efficiency, when coupled with historical trends, produces movements that can be analyzed and applied to the future movements of the stock market.
Because the fundamental information about the potential growth of a company is not taken into account, technical analysis is not intended for long-term investments. Trades are entered and exited at precise times so technical analysts need to spend a lot of time watching the movements of the stock market. Investors can take advantage of both upswings and downswings in price by going either long or short. In the event that the market doesn’t move as expected, the losses can be limited by stop-loss orders.
Hundreds of stock patterns have been developed over time. Most of these patterns rely on the basic concepts of “support” and “resistance.” The level where downward prices are expected to rise from is called the support while the level where the upward prices are expected to reach before falling again is called the resistance. Once they hit the support or the resistance levels, the prices tend to bounce.
Charts
Technical analysis is heavily reliant on charts for tracking market movements. The most commonly used of these charts are the bar charts. Bar charts contain vertical bars that represent a particular time period. The top part shows the highest price for the period while the bottom part shows the lowest price. There are two small bars in the chart. The small bar in the right indicates the opening price while the small bar in the left indicates the closing price. A large price spread is indicated by long bars. The position of the side bars shows if a price increased or decreased and it also shows the spread between the opening and closing prices.
Candlestick charts are variations on the bar charts. Solid bodies are used by these charts in order to indicate the variation between the opening and closing prices. The lines or shadows that extend above and below the body show the highest and lowest prices. When it comes to the color of the candlestick bodies, black or red represents a closing price that is lower than the previous period while white or green represents a closing price that is higher. The various shapes formed by the candlesticks also describe certain movements in the stock market. A bullish stock, which opened near its low and closed near its high, is represented by a green body with short shadows while a bearish stock, which opened near its high and closed near its low, is represented by a red body with short shadows. There are over twenty different patterns that can be formed by candlesticks
The belief that stock prices move in predictable patterns is the basis for technical analysis. The factors that influence the movement of the price are supposedly reflected in the stock market with great efficiency. These factors include company performance, economic status, and natural disasters. The efficiency, when coupled with historical trends, produces movements that can be analyzed and applied to the future movements of the stock market.
Because the fundamental information about the potential growth of a company is not taken into account, technical analysis is not intended for long-term investments. Trades are entered and exited at precise times so technical analysts need to spend a lot of time watching the movements of the stock market. Investors can take advantage of both upswings and downswings in price by going either long or short. In the event that the market doesn’t move as expected, the losses can be limited by stop-loss orders.
Hundreds of stock patterns have been developed over time. Most of these patterns rely on the basic concepts of “support” and “resistance.” The level where downward prices are expected to rise from is called the support while the level where the upward prices are expected to reach before falling again is called the resistance. Once they hit the support or the resistance levels, the prices tend to bounce.
Charts
Technical analysis is heavily reliant on charts for tracking market movements. The most commonly used of these charts are the bar charts. Bar charts contain vertical bars that represent a particular time period. The top part shows the highest price for the period while the bottom part shows the lowest price. There are two small bars in the chart. The small bar in the right indicates the opening price while the small bar in the left indicates the closing price. A large price spread is indicated by long bars. The position of the side bars shows if a price increased or decreased and it also shows the spread between the opening and closing prices.
Candlestick charts are variations on the bar charts. Solid bodies are used by these charts in order to indicate the variation between the opening and closing prices. The lines or shadows that extend above and below the body show the highest and lowest prices. When it comes to the color of the candlestick bodies, black or red represents a closing price that is lower than the previous period while white or green represents a closing price that is higher. The various shapes formed by the candlesticks also describe certain movements in the stock market. A bullish stock, which opened near its low and closed near its high, is represented by a green body with short shadows while a bearish stock, which opened near its high and closed near its low, is represented by a red body with short shadows. There are over twenty different patterns that can be formed by candlesticks
differance between Pink Sheets and Stocks
Pink Sheets is an electronic quotation system for many Over-the-Counter (OTC) securities. The name of the system was derived from the color of the paper where the quotes were originally printed on. Nowadays, Pink Sheets publishes quotations on the Internet. Most of the listings on Pink Sheets are penny stocks.
Securities that are less than $5 in value are called penny stocks. Most of the companies listed in the Pink Sheets are those that cannot meet the requirements of other exchanges like NYSE and NASDAQ. Since the Pink Sheets has no listing requirements, companies opt for this kind of system in order to trade penny stocks. Companies with no financial histories can also be listed on the Pink Sheets.
Although the Pink Sheets is not a registered stock exchange, it can list companies that will otherwise be unable to raise capital through stock offerings. It is not regulated by the Securities and Exchange Commission (SEC). The Pink Sheets is only accessible by brokers who are licensed by the National Association of Security Dealers (NASD). The brokers are required to follow the regulations set by the NASD while the companies are required to follow the Federal and State security laws.
The stocks listed in the Pink Sheets carry more risks than the stocks which are listed on regulated exchanges like AMEX. A lack of financial data usually indicates that a company may be on the effort of preventing bankruptcy or on the attempt of staying afloat. Some companies just use the Pink Sheets as an intermediate to raise capital while still in the process of becoming listed on regular exchanges.
In order to get listed in the Pink Sheets, companies need to hire broker dealers that will quote the stocks. The only requirement is that the broker has to be a member of the National Association of Securities Dealers (NASD). Once they are listed, the companies remain in the Pink Sheets list as long as the stocks are quoted. It is also possible for a stock that no longer exists to stay quoted in the Pink Sheets.
The low cost is the main advantage of buying Pink Sheets securities. Investors who wish to get in on a new company from the beginning are able to pick up stocks for literally pennies. In the event that the company does well and grows, the small initial investment will then pay large dividends.
The main advantage of buying Pink Sheets securities is their low cost. Investors who hope to get in on a new company right at the beginning can pick up stock for literally pennies. In the event that the company does well and grows the small initial investment will pay large dividends.
There is also a very real risk that the company will simply vanish. It will just leave the valueless stock issues behind so investors who are interested in penny stocks listed on the Pink Sheets should be prepared to lose all. Because of that reason, Pink Sheets investments have to represent only a small portion of an overall investment portfolio.
The lack of liquidity in the Pink Sheets listings is another risk that investors need to deal with. Because the volume is generally low and the search for stock buyers is actually difficult in Pink Sheets, a lot of sellers tend to settle for even lower prices just to unload their shares.
Securities that are less than $5 in value are called penny stocks. Most of the companies listed in the Pink Sheets are those that cannot meet the requirements of other exchanges like NYSE and NASDAQ. Since the Pink Sheets has no listing requirements, companies opt for this kind of system in order to trade penny stocks. Companies with no financial histories can also be listed on the Pink Sheets.
Although the Pink Sheets is not a registered stock exchange, it can list companies that will otherwise be unable to raise capital through stock offerings. It is not regulated by the Securities and Exchange Commission (SEC). The Pink Sheets is only accessible by brokers who are licensed by the National Association of Security Dealers (NASD). The brokers are required to follow the regulations set by the NASD while the companies are required to follow the Federal and State security laws.
The stocks listed in the Pink Sheets carry more risks than the stocks which are listed on regulated exchanges like AMEX. A lack of financial data usually indicates that a company may be on the effort of preventing bankruptcy or on the attempt of staying afloat. Some companies just use the Pink Sheets as an intermediate to raise capital while still in the process of becoming listed on regular exchanges.
In order to get listed in the Pink Sheets, companies need to hire broker dealers that will quote the stocks. The only requirement is that the broker has to be a member of the National Association of Securities Dealers (NASD). Once they are listed, the companies remain in the Pink Sheets list as long as the stocks are quoted. It is also possible for a stock that no longer exists to stay quoted in the Pink Sheets.
The low cost is the main advantage of buying Pink Sheets securities. Investors who wish to get in on a new company from the beginning are able to pick up stocks for literally pennies. In the event that the company does well and grows, the small initial investment will then pay large dividends.
The main advantage of buying Pink Sheets securities is their low cost. Investors who hope to get in on a new company right at the beginning can pick up stock for literally pennies. In the event that the company does well and grows the small initial investment will pay large dividends.
There is also a very real risk that the company will simply vanish. It will just leave the valueless stock issues behind so investors who are interested in penny stocks listed on the Pink Sheets should be prepared to lose all. Because of that reason, Pink Sheets investments have to represent only a small portion of an overall investment portfolio.
The lack of liquidity in the Pink Sheets listings is another risk that investors need to deal with. Because the volume is generally low and the search for stock buyers is actually difficult in Pink Sheets, a lot of sellers tend to settle for even lower prices just to unload their shares.
diferance between Bull Markets and Bear Markets
There are two ways to describe the general conditions of the stock market: it can be a bull market or a bear market. A bear market indicates the continuous downward movement of the stock market. Conversely, a bull market indicates the constant upward movement of the stock market. A particular stock that seems to be increasing in value is described to be bullish while a stock that seems to be decreasing in value is described to be bearish.
The bull and bear terms do not refer to the short term fluctuations in the stock market. A bear market is the stock market wherein the prices of the key stocks have fallen by 20% or more over a period of at least two months. Prices, even during a bear market, may temporarily increase. Bull markets, being the opposite of bear markets, indicate a rise in the prices of the key stocks over a certain period of time.
The economical state of a country is usually reflected through the stock market conditions. The stock market of an economy with reasonable interest rates and low unemployment rates is considered to be bullish since it is doing just well. Bear markets, on the other hand, usually occur during a slowdown in an economy. The investors tend to lose their confidence and the companies begin to lay off their workers. An exaggerated bear market will eventually lead to a crash that is brought on by panic selling while an exaggerated bull market will actually result to a market bubble that is brought on by investor over-enthusiasm.
Even if most money can be made during bull markets, bear markets also present a lot of financial opportunities. Investors use their knowledge of the characteristics of each type of market as an investment strategy. It is expected that a bullish market will generate a huge number of investors who wish to buy some stocks. Because a bullish market could also mean that the economy is doing well, there will be a lot of people interested in buying stocks since they have the extra money to spend. This kind of situation will cause an increase in the prices of the stocks because there will be a shortage in the supply of stocks. During bear markets, it is expected that a lot of investors will have the desire to unload their stocks and put their money in fixed-return instruments like bonds due to the continuous decrease in the prices of the stocks. Supply tends to exceed demand as money is withdrawn from the stock market. This causes the prices of the stocks to lower even further.
It is easier to make money during bull markets. In a bull market, all dips are temporary and they are going to be corrected any time soon. Since the upward rising of the prices cannot go on forever, the investors need to sell their stocks when the market reaches its peak.
Bear markets are considered to be opportunities of picking up stocks at bargain prices. Approaching the end of a bear market will offer the greatest chance to generate some profit. Since the prices will most likely fall before they recover, the investors have to be prepared for some short-term loss. One investment strategy used during bear markets is short selling. It involves the selling of the stocks that they do not own in the anticipation of further decrease in prices. This strategy gives the investors a chance to buy the stocks for a price that is lower than their previous selling price.
During bear markets, fixed-return investments such as CAs and bonds can also be used to generate income. Defensive stocks, which include government-owned utilities that provide necessities despite the current economic state, are also safe to buy even during bear markets.
The bull and bear terms do not refer to the short term fluctuations in the stock market. A bear market is the stock market wherein the prices of the key stocks have fallen by 20% or more over a period of at least two months. Prices, even during a bear market, may temporarily increase. Bull markets, being the opposite of bear markets, indicate a rise in the prices of the key stocks over a certain period of time.
The economical state of a country is usually reflected through the stock market conditions. The stock market of an economy with reasonable interest rates and low unemployment rates is considered to be bullish since it is doing just well. Bear markets, on the other hand, usually occur during a slowdown in an economy. The investors tend to lose their confidence and the companies begin to lay off their workers. An exaggerated bear market will eventually lead to a crash that is brought on by panic selling while an exaggerated bull market will actually result to a market bubble that is brought on by investor over-enthusiasm.
Even if most money can be made during bull markets, bear markets also present a lot of financial opportunities. Investors use their knowledge of the characteristics of each type of market as an investment strategy. It is expected that a bullish market will generate a huge number of investors who wish to buy some stocks. Because a bullish market could also mean that the economy is doing well, there will be a lot of people interested in buying stocks since they have the extra money to spend. This kind of situation will cause an increase in the prices of the stocks because there will be a shortage in the supply of stocks. During bear markets, it is expected that a lot of investors will have the desire to unload their stocks and put their money in fixed-return instruments like bonds due to the continuous decrease in the prices of the stocks. Supply tends to exceed demand as money is withdrawn from the stock market. This causes the prices of the stocks to lower even further.
It is easier to make money during bull markets. In a bull market, all dips are temporary and they are going to be corrected any time soon. Since the upward rising of the prices cannot go on forever, the investors need to sell their stocks when the market reaches its peak.
Bear markets are considered to be opportunities of picking up stocks at bargain prices. Approaching the end of a bear market will offer the greatest chance to generate some profit. Since the prices will most likely fall before they recover, the investors have to be prepared for some short-term loss. One investment strategy used during bear markets is short selling. It involves the selling of the stocks that they do not own in the anticipation of further decrease in prices. This strategy gives the investors a chance to buy the stocks for a price that is lower than their previous selling price.
During bear markets, fixed-return investments such as CAs and bonds can also be used to generate income. Defensive stocks, which include government-owned utilities that provide necessities despite the current economic state, are also safe to buy even during bear markets.
how do we Know About Stock Market
“Stock market” is a term used to describe the physical location where the buying and selling of stocks take place as well as the overall activity of the market within a particular country. The correct term to be used in pertaining to the physical location for trading stocks is “stock exchange.” Every country may have a couple of different stock exchanges that are usually traded on only one exchange although a lot of large corporations may be listed in several different locations.
The ubiquity of stock exchanges makes it possible to buy or sell stocks throughout the world. The only restriction to stock exchanges is time. Different exchanges may have differing opening hours based on their local times. The major stock exchanges in the world are the Tokyo Stock Exchange of Japan, the Bombay Stock Exchange of India, the London Stock Exchange of United Kingdom, the Frankfurt Stock Exchange of Germany, the SWX Swiss Exchange of Switzerland, the Shanghai Stock Exchange of China, and the New York Stock Exchange, the NASDAQ, and the AMEX of United States.
The economic health of a country is closely followed by stock markets. Bull markets occur when a particular nation experiences high economic production, low unemployment level, and low inflation rates. Bear markets, on the other hand, follow the down trends in the economy. Such indicators of economic downfall are increased unemployment and inflation. These causes the fall of stock prices.
Supply and demand, which are determined to a large extend by investor psychology, also influence the fluctuations in the prices of stocks. A rise in stocks may cause a lot of investors to jump into the bandwagon which later drives the price even faster. A falling price, on the other hand, can drive the same effect called short term fluctuations. After such runs, stock prices tend to normalize.
Aside from the stock exchange, other popular markets that offer many investment opportunities include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market. The FOREX is the biggest investment market in the world, in terms of trades and values. The traders in a FOREX buy one currency against another and profit from small changes in the value. Most FOREX trades are entered and exited in a 24-hour span so traders have to keep a close watch on the market in order to make profitable trades.
The futures market is a market of contracts where goods are bought and sold at specified prices and times. The desire of most buyers and sellers to lock in the prices of their goods for a future delivery despite the market conditions resulted to the existence of the futures market. The market conditions can make the actual futures contract to fluctuate considerably in value. Most of the investors in the futures market are mainly interested in the profit that can be realized in trading contracts and not in the actual goods.
Another alternative market is the options market. The options market is quite similar to the futures market because it also features a contract that gives the right, and not the obligation, to trade a stock at a certain price before the specified date. These can be traded on their own or purchased as an insurance against price fluctuations within a specified time frame.
The FOREX, the futures market, and the options market are all quite risky markets that require a considerable knowledge and experience to prevent any substantial loss. These also require a very close attention to the different market movements. As compared to the three, stocks are considered to be less risky because the movements of the market are usually gradual and although short term investment strategies are possible, a lot of people view stocks as long term investments.
The ubiquity of stock exchanges makes it possible to buy or sell stocks throughout the world. The only restriction to stock exchanges is time. Different exchanges may have differing opening hours based on their local times. The major stock exchanges in the world are the Tokyo Stock Exchange of Japan, the Bombay Stock Exchange of India, the London Stock Exchange of United Kingdom, the Frankfurt Stock Exchange of Germany, the SWX Swiss Exchange of Switzerland, the Shanghai Stock Exchange of China, and the New York Stock Exchange, the NASDAQ, and the AMEX of United States.
The economic health of a country is closely followed by stock markets. Bull markets occur when a particular nation experiences high economic production, low unemployment level, and low inflation rates. Bear markets, on the other hand, follow the down trends in the economy. Such indicators of economic downfall are increased unemployment and inflation. These causes the fall of stock prices.
Supply and demand, which are determined to a large extend by investor psychology, also influence the fluctuations in the prices of stocks. A rise in stocks may cause a lot of investors to jump into the bandwagon which later drives the price even faster. A falling price, on the other hand, can drive the same effect called short term fluctuations. After such runs, stock prices tend to normalize.
Aside from the stock exchange, other popular markets that offer many investment opportunities include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market. The FOREX is the biggest investment market in the world, in terms of trades and values. The traders in a FOREX buy one currency against another and profit from small changes in the value. Most FOREX trades are entered and exited in a 24-hour span so traders have to keep a close watch on the market in order to make profitable trades.
The futures market is a market of contracts where goods are bought and sold at specified prices and times. The desire of most buyers and sellers to lock in the prices of their goods for a future delivery despite the market conditions resulted to the existence of the futures market. The market conditions can make the actual futures contract to fluctuate considerably in value. Most of the investors in the futures market are mainly interested in the profit that can be realized in trading contracts and not in the actual goods.
Another alternative market is the options market. The options market is quite similar to the futures market because it also features a contract that gives the right, and not the obligation, to trade a stock at a certain price before the specified date. These can be traded on their own or purchased as an insurance against price fluctuations within a specified time frame.
The FOREX, the futures market, and the options market are all quite risky markets that require a considerable knowledge and experience to prevent any substantial loss. These also require a very close attention to the different market movements. As compared to the three, stocks are considered to be less risky because the movements of the market are usually gradual and although short term investment strategies are possible, a lot of people view stocks as long term investments.
Understanding the Importance of Stocks and stock market
A stock is a small share that represents a partial ownership of a company. Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company.
Even a small share of the company will give the investors the right to have a say in how the company is run. Although they gain a portion of the company’s profits, investors do not carry an obligation to the company in cases of defaults or lawsuits.
Investors buy stocks with the belief that the company will grow continuously to raise the value of their shares. Acquiring stocks from a new company is considered to be more risky than buying shares from a well-established company but the potential gain is much greater. People who invested in Microsoft shares gained a lot of profit due to the exponential rise of the company.
Only those companies which are listed on public exchanges like the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotation System (NASDAQ) are capable of stock trading.
An individual investor hires a broker to make transactions for him. A broker takes specific orders from the investor regarding the buying or the selling of stocks. These orders may include some specific instructions to trade at a price that the market will bear or at a price that the investor will prefer. The broker then tries to execute the investor’s orders by searching for either a buyer or a seller. The broker receives a commission on the sale.
Stocks have a lot of advantages over savings investments because they represent ownerships in a particular company. This gives the investor a certain right to participate in making decisions for the company. Some important company matters require voting and one stock is equivalent to a single vote.
Stocks, when compared with savings investments, both carry a higher risk of losing money and a higher potential of earning money. A good knowledge of the different stock markets and the various investment strategies can help investors to minimize their losses.
Even a small share of the company will give the investors the right to have a say in how the company is run. Although they gain a portion of the company’s profits, investors do not carry an obligation to the company in cases of defaults or lawsuits.
Investors buy stocks with the belief that the company will grow continuously to raise the value of their shares. Acquiring stocks from a new company is considered to be more risky than buying shares from a well-established company but the potential gain is much greater. People who invested in Microsoft shares gained a lot of profit due to the exponential rise of the company.
Only those companies which are listed on public exchanges like the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotation System (NASDAQ) are capable of stock trading.
An individual investor hires a broker to make transactions for him. A broker takes specific orders from the investor regarding the buying or the selling of stocks. These orders may include some specific instructions to trade at a price that the market will bear or at a price that the investor will prefer. The broker then tries to execute the investor’s orders by searching for either a buyer or a seller. The broker receives a commission on the sale.
Stocks have a lot of advantages over savings investments because they represent ownerships in a particular company. This gives the investor a certain right to participate in making decisions for the company. Some important company matters require voting and one stock is equivalent to a single vote.
Stocks, when compared with savings investments, both carry a higher risk of losing money and a higher potential of earning money. A good knowledge of the different stock markets and the various investment strategies can help investors to minimize their losses.
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