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Basics of Stock Exchanges and Stock Trading

    IndianMoney.com Research Team | Tuesday, April 21,2009, 05:37 PM
 

Stock Trading

Stock Exchange is the terminology for the physical location where the actual activity of stock trading/share trading or investing in stocks takes place. Most countries have many diverse stock exchanges and typically a particular company's stocks are traded on only one exchange, although large corporations may be listed in several different locations.

Stock Exchanges

Stock exchanges are present throughout the world. It is feasible to buy or sell stocks on any of them by having trading accounts with the various stock brokers. You can also try to get stock trading information from these exchanges. The only constraint is the opening hours of each exchange. For example, NSE and BSE allow stock trading operations from 9:55 a.m. to 3:30 p.m. Indian standard Time from Monday to Friday. Other exchanges have similar opening hours based on their local time. If you desire to trade on the Hong Kong Stock Exchange your order will be executed sometime between 9:30 p.m. and 4:00 a.m.

The main stock exchanges of the world are;

The expression Stock Trading is generally used to encompass both the physical location for buying and selling (trading) stocks as well as the overall activity of the market within a certain country. When we hear a phrase such as the stock market was down today it refers to the combined stock trading activity of many stock exchanges i.e. the Bombay stock exchange (BSE), National Stock Exchange (NSE), etc.

  • Japan (Tokyo Stock Exchange)
  • India (Bombay Stock Exchange)
  • Europe (London Stock Exchange
  • Frankfurt Stock Exchange (SWX Swiss Exchange)
  • The People's Republic of China (Shanghai Stock Exchange) and
  • United States (NYSE, NASDAQ, and Amex)

By providing a centralized, ready market for the exchange of securities, stock exchanges greatly make easy the financing of business through flotation of stocks and bonds. Though, speculative stock trading can sometimes accentuate the volatility of an economy. The reality of the Great Depression was highlight by the stock market crash in 1929. The interstate sale of securities and assured stock exchange practices in the United States are synchronized by federal laws administered by the Securities and Exchange Commission.

Stock trading intimately follows the economy of a country. When the economy is doing sound, the market is bullish. Bull markets occur during times of high economic production, low unemployment and low inflation. Bear markets, on the other hand, tracks downtrends in the economy. When inflation and unemployment see an upsurge, stock prices start falling. Therefore, to keep investments safe, savvy investors track various economic indices, and stock market trends.

Fluctuations in stock prices are also determined by supply and demand, which in turn are determined to a large degree on investor psychology. Seeing a stock rise in price may cause investors to leap on the bandwagon and this hurry to buy drives the price even faster. A falling price can have the similar effect. These are kind of short term fluctuations. Stock prices be inclined to normalize after such runs. Therefore, to predict possible upturns or downturns in the stock markets, it becomes very important to track and analyze stock trading information.

The stock exchange is only one of many chances to invest. Other kinds of popular markets include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market.

Foreign Exchange Market

The FOREX is the largest (in terms of value of trades) investment market in the world. FOREX traders buy one currency against another and can yield from small changes in value. Most FOREX trades are entered and exited in one 24 hour span, and traders have to keep an observation on the market in order to make profitable trades.

The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists since buyers and sellers of goods wish to lock in prices for future delivery, although market conditions can make the actual futures contract fluctuate significantly in value. Most investors in the futures market are not interested in the actual goods but are only interested in the profit that can be realized in trading the contracts.

Futures & Options

The Options Market is alike to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a definite time frame.

All three of these markets are fairly risky and require considerable knowledge and experience to prevent considerable losses. They also need close attention to market movements. Stock Investments, alternatively, are less risky since movements of the market are usually gradual. Even though short term investment strategies are possible, the majority view stocks as long term investments. However whatever your financial objectives might be, try to use a stock trading system. This will help you in maximizing your profits and also keeping your investments safer.

There are two basic ways to trade in the stock market. They are shooting in the barrel or using effective stock trading strategies to decide which stocks to buy, when to sell, and how to protect your investment money. Unnecessary to say, strategies outperform barrel shooting by a large margin. There are, though, hundreds of stock market trading strategies to select from. New stock trading strategies can be look at once the basic ones are well-understood.

Hedging

Hedging is one of the best stock trading strategies to follow if your objective is capital protection. Hedging is a way of protecting an investment by reducing the risks involved in holding a particular stock. The risk is that the price of the stock will fall can be offset by buying a put option that allows you to sell at the stock at a particular price within a definite time frame. If the price of the stock falls, the value of the put option will amplify.

If you have a broad portfolio, buying put options against individual stocks can be a costly stock trading strategy to follow. A better option would be to buy a put option on a stock index. This protects you against common market declines.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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