December 27th, 2008 by admin
When it comes to investing money through a reliable investment approach, most of the investors consider trading stocks as the most suitable option. Since lifestyles are changing, everybody is facing the need of extra income source; in such a situation, stock trading can prove to be very effortless and beneficial solution. In fact, stock trading is such a financial activity that assures every investor for easy financial resource. People, who are interested in investing their hard-earned money in stocks, can go for it without giving it a second thought but some basic knowledge regarding this sector is essential.
The very first question that comes in very investor’s mind is what is stock exchange? Well stock exchange can be referred as a place, where all stock related activities are carried out; in simple terms, it is a market where exchanges in terms of money and stocks take place. Moreover, the stock exchange takes care of every activity that is related to buying and selling of shares and debentures. Stock exchange is open for every investor and it provides every investor with equal right to invest money. Since stock market has a very strong affect on the economy, it easily gets affected by frequent ups and downs of the concerned economy. Therefore, to deal with such minor complications, every investor should be very well-versed with the basic nature of stock and stock market.
People, who invest in stock market, make every deal through stockbrokers, as they know how to make every investment beneficial in fluctuating market. However, consulting such stockbrokers at some crucial points is sensible but unnecessary dependency should be avoided; that unnecessary dependency can be avoided by being aware about changes that are happening in the market. With involvement of online tools and techniques, things have become much easier for every investor, as now he can get the desired information just through few mouse clicks. So, why to worry? Online stock trading is there to inform every investor about the condition of his investments. Just relax and browse through websites that contain updated details of the market and analyze them to make a beneficial decision.
Some investors have the tendency of making rushed decisions which is very dangerous in trading stocks, as stock trade is highly variable market and changes do not stay here for a long time. When deflation or inflation crop up, every investor gets vexed and starts pondering over selling and buying of stocks to earn desired profit or to avoid loss, which is not sensible at all. Making such hasty decisions can lead to a big loss or sometimes, it can restrict the investor from taking benefit of upcoming rise. In fact, stock market investing is a very unpredictable affair and only those can survive and attain the desired profit, who keep their eyes and ears open. The same rule applies at the time of purchasing stocks, as level of profit very much depends on the market position of the issuer company therefore, make every decision assiduously, so that your investments may become your biggest financial strength.
SogoTrade stock broker: Stock trading
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November 18th, 2008 by admin
Before you open up an account with a brokerage firm and jump into trading, you should educate yourself about the different ways that you can invest your money so that you know what you are getting yourself into.
Options - An options trader speculates that a certain stock will trade higher or lower than a determined price within a specific time frame. The options contract is an agreement between two people to buy or sell at the predetermined price in the future. The reason it is called an option is because the buyer does not have to go through with the purchase. He can choose not to execute the option. Option trading is not for those new to trading. It can be very risky, but a trader can also accumulate large gains in a short period of time.
Futures - Futures trading is a type of trade where the investor speculates whether the price of a commodity will rise or fall. It is frequently referred to as commodities trading. It is an easy to understand type of trading and there are only about forty types of commodities in which you can invest. There is an enormous opportunity for huge gains in a short period of time. Of course, the potential for big profits exists because there is a risk for enormous losses as well.
Stocks - If you purchase shares of stock then you own a part of a company. If that company turns a profit, then you will see a gain in your investment. If the company loses money, then you too will lose a portion of your investment. As a stockholder in a company you will receive quarterly and annual reports on the company’s financial strength. Shareholders elect the people who serve on the board of directors, so even if you own just one share, you still get one vote.
Forex - Forex is a foreign exchange market. Foreign currencies are bought and sold. The investor is speculating as to whether the currency of a particular country will go up or go down. Forex is one of the largest markets in the world with over two trillion dollars in trades done on an annual basis. The advantage of trading on Forex is that the market is open 24 hours a day. There is no bell to wait for in order to begin trading.
Currency trading - Currency trading occurs in a market where the currencies are traded against one another. All trades are done in pairs. The investor speculates that one currency will go higher than the other currency and then wait for the profit. Trades are carried out through a network of banks and online brokerage houses. It is a very liquid market.
Day trading - Day traders buy and sell stocks within a very short period of time, usually within the same day, but the trade can also be done within a day or two. The idea is to turn a quick profit and move on to finding other hot stocks.
Swing trading - Swing trading is similar to day trading, but the trades occur over a longer period of time, which can be a few days to a few weeks.
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You can’t go far in today’s world without hearing something about the stock market. Unfortunately, the media take for granted that all of us in the audience understand the stock market. The good news if you don’t have a clue how to interpret all of those stock symbols running in the ticker at the bottom of your screen you’re not alone.
But that’s about to change. Below is an overview of some of things you need to know about the stock market.
Stock Market Background
The purpose of the stock market is to allow businesses to grow and to let investors have a way of earning money. Let me give you an example on a very small scale. Your child opens up a lemonade stand in your neighborhood for a week. She earns a decent profit and decides to open up a second stand at her grandparent’s house. Unfortunately, she doesn’t have enough money for the expansion. Other kids could pitch to cover the costs and receive a portion of the profits she makes.
That’s exactly what happens every day in the stock markets all over the world with thousands of different companies and millions of stockholders.
How to Invest in the Market, Stock Purchasing Guidelines
If you want to purchase stocks, you′ll want to form a relationship with a stock trader. These are individuals who work in the stock exchange, through virtual stock exchanges, or with trading software. You′ll give them your money, tell them what you want to buy, and they’ll complete the transaction on your behalf. For this service, they do receive a commission on the transactions.
Some people also use their traders for stock advice. However, you can make your own choices about which stock to buy. Obviously, the secret to making money is to purchase stock at a lower price and sell it at a higher price. That may sound overly simplistic but it’s this thinking that drives all investors.
Another idea to understand is supply and demand because this affects the prices in the market; stock prices go up and down based on this basic principles. For example, if lots of investors realize that big is happening for a company they may all decide to purchase stock in that company. That decision increases demand for that stock thus raising the price. On the other hand, if the same company has a poor financial quarter many investors may start selling off stock which means the supply is increasing and the price drops.
Earning Money from Stocks
Another question you might have is how you earn money from the stocks. As a stockholder, you receive a portion of the company’s profits. When the company determines their earnings and deduct all of their expenses, they are left with their profit. That profit is divided by the number of stockholders and each receives a portion. For example, if you own 1% of a company which generated $2 million in profit then you would earn $20,000 for your stock. If the company doesn’t make any profits, however, you don’t receive anything.
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Successful stock investing without the proper tools is like building a house without using a hammer and screw driver. It can be done successfully, but your odds that the whole effort will come crashing down on you are much greater. If you have been investing in the stock market for any length of time but have been frustrated by the frequent ups and downs in the market, and you find yourself in the red more often than not, then you may not be leveraging the right stock investing tools.
Research is one of the most critical elements of the entire stock investing game, especially if you are a day trader looking to make quick gains on your investment. How do you know which stocks to invest in, out of the hundreds of thousands of stocks available on the market? How do you know which ones are doing well and which ones are doing poorly? And how do you game the market so that you can get into and out of a stock as quickly as possible and walk away with a sizable profit that you can be happy with?
Computer software programs exist now that can greatly simplify the research process for you. There are stock analysis programs that are capable of processing millions of data points belonging to hundreds of thousands of stocks in a matter of minutes. By analyzing various trends using complex mathematical algorithms, they can make “stock predictions” for you. These predictions are really mathematical forecasts based on extrapolations formulated by the data available to the software program.
If you could run a computer program that would process all of the data available about every stock on the market and spit out a handful of “hot buy″ recommendations for you, would you take its advice? The computer is basically telling you that based on past performance, trends, and patterns, stocks X, Y, and Z are on the verge of experiencing a sudden spike in value in the impending future. Would you do it?
Are you using the right stock investing tools?
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Now a day’s everyone wants to make it big in the stock market. Trading can be a rewarding task when you get the hang of it. That is why I have put together this list of stock market tips.
1. Cut your losses short. It is very important to cut your losses short in the stock market. Capitol preservation is a very important key to remember. Think about it if you lost all your capitol when you were right you will not have any capitol to make money with when you are right.
2. Don’t trade against the industry group. It is said that 50% of what a stock does is based on its industry group. If the steel industry group is going up then stocks in that group are likely to go up to. There will be stocks in that group that go down, but it is best to stay away from these.
3. Develop your own system. This is perhaps the most important part of investing. You must develop your own system of strict rules that tell you when to buy and when to sell. These rules should be simple enough for you to be able to follow them effortlessly.
4. Don’t trade against the trend. Bottom fishing and top picking are the most dangerous ways to trade. The risk that you would face with picking tops and bottoms far outweigh the rewards. It is better to buy a stock that is heading up then to short it.
5. Keep your emotions in check. If you cannot control your emotions when trading you will lose money. Some traders get in and out of trades because they are scared, as opposed to when there system tells them too. This will only hurt them.
For more information on how to trade the stock market visit http://www.stocks-simplified.com
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Stocks are bought and sold on stock exchanges where the sellers and buyers meet to decide the prices of stocks and trade them. Such stock exchanges are made of brick and mortar. Stocks are bought and sold on the trading floor. We have often seen the visuals of traders in blue jackets wildly waving their hands, gesticulating and trying to out-yell each other. This type of exchange is called physical exchange.
The other type of exchange is virtual exchange. It is comprised of a network of computers where stocks are traded electronically. The traders can buy and sell the stocks from the comfort of their homes using computers and internet.
The purpose of the stock market is to facilitate the exchange of securities, in other words, buying and selling of shares. A stock market is like a farmers’ super-sophisticated market which brings together both the buyers and sellers of stocks. You can imagine how difficult it would be to find a customer to buy your shares in your neighborhood. It might not be easy to find one even if you advertised in the local press. Even if you found a customer, it would still be difficult to sell him your stock because the trade requires certain formalities, which can be performed only through the good brokerage firm.
Stock exchange solves the problem of buying and selling the stock.
The stock market is of two types, primary market and secondary market. The primary market is one where securities are created through an Initial Public Offering. Once the shares have been issued, they are traded in another market which is called secondary market. So secondary market is the place where the investors trade the previously issued securities without involving the share issuing companies. When we talk about stock market, we are referring to the secondary market. It must also be understood that the trading of a company’s stock does not directly involve the company itself.
There are three major stock exchanges in the US. They are New York Stock Exchange-NYSE, National Association of Securities Dealers Automated Quotations or the NASDAQ and the American Stock Exchange -AMEX.
The New York Stock Exchange
Also nicknamed the ‘Big Board’, the NYSE is the most prestigious exchange in the world. Founded in 1792, more than two centuries back, NYSE is an example of a physical exchange. It is a listed exchange and provides market for the stocks of some of the largest companies of the US including like General Electric, McDonald’s, Citigroup, Coca-Cola, Gillette and Wal-mart.
Orders come in through the brokerage firms which are the members of the exchange. Stocks are auctioned on the spot called trading post. There is a specialist who matches the buyers and the sellers. The current price is the highest price that any buyer is ready to pay and the lowest price is the one which the seller is willing to accept. Once a trade has been arrived at, the details are sent to the brokerage firms. Computers do play a significant role in NYSE. The trading floor of the exchange is located at 11 Wall Street and is comprised of four trading rooms.
The NASDAQ
The NASDAQ is the perfect example of a virtual stock exchange. It is also called over-the-counter market. Trading at NASDAQ is done electronically through the computers and a telecommunication network of traders. NASDAQ trades the stocks of some of America’s big technology companies such as Microsoft, Cisco, Intel, Dell and Oracle. The brokerage firms act as the market makers for various stocks on the NASDAQ. The market makers provide for continuous bid and ask prices. An inventory of shares is maintained to meet the demands of the investors.
The American Stock Exchange or the AMEX
AMEX is the third largest stock exchange in the US. It provides for the trading of small-cap stocks and derivatives.
If you want to do stock trading you will have to find a stockbroker who will make an order to buy or sell stocks. It is the stock broker who does all the work of buying and selling the stocks for you. All you have to do is to open an account with him and place your orders.
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The first and the most important step towards making money in stock trading is to acquaint yourself with various concepts associated with it. This will help you to make independent and informed decisions rather than depending upon borrowed knowledge. Here are some of the important points to consider while investing in stock trading:
Learn where to invest your money
Before you decide where to invest your money, it is important to keep in mind that you should never try to invest in ‘markets’. Only huge financial institutions like index future traders or mutual funds worry about market indexes. Try to ignore most of what you hear about the so-called ‘markets’. Do not try to understand where the market is going because market is a collection of major stock indexes. Therefore try to free yourself from the opinions of mediocre mutual funds and financial planners.
Instead, you must learn to find out the good but cheap companies to invest in and hold your stock till they grow to reward you with good profits. The key to success is to clearly understand the true worth of the company. Then you can use the age-old formula of buying low and selling high. You should identify a good company, wait till its stock price falls below its true worth by a tempting margin. Once you buy its stock, you need to keep track of the company’s value. You should sell the stock when its price rises to an uncomfortably high premium to its true worth, so the basic lesson in stock trading education is that all your trading decisions should be guided by comparing the company’s stock price to its true worth and not by rumors of what a hot stock at a given moment is.
The basic criteria in selecting a good company should be to ensure that it is in a strong industry and is growing as well. For example, Coca Cola Enterprises is one of the largest companies in the area of soft drinks. This makes its stock an attractive investment option. Although it is better to find out a good new and rapidly growing company, the job of finding such a company may not be easy. Using two tools, fundamental analysis and technical analysis can do it.
Fundamental Analysis
Fundamental analysis helps the investor to understand the company’s current management and its position in the market. It also enables an investor to understand if a stock is overvalued, undervalued or is trading at a fair price. This can be determined by applying the concept of intrinsic value of the stock. Fundamental analysis involves examining the information regarding the company’s future anticipated growth, sales figures, cost of operations and industry structure besides many other factors. This exercise provides the intrinsic value of its stock. According to those who rely upon fundamental analysis, the market price of a stock tends to move towards its intrinsic value. If the intrinsic value of a stock is above the current market price, the investor should buy the stock. If, however, the intrinsic value, according to the fundamental analysis, is below the market price, the investor should sell the stock, or, take a short position in the stock.
Technical Analysis
The other way to find the true worth of a company is to go for the technical analysis of its stock This method is based on studying the charts, which help you to identify the market trends of the stock and invest accordingly.
An easy way to use the charts is to study the candlestick charts. A candlestick chart reveals several basic pieces of information in every period of time, it may be daily, monthly or yearly basis.
Technical analysis studies the past price movement of a stock with the help of charts. This helps in understanding its future performance. Every investor tries to analyses the future price of a stock on the basis of its past performance almost every day, whether consciously or unconsciously. He tries to determine whether the stock price is going up or down in the near term and the odds of that trend continuing.
It is advisable to use both the perspectives to view a stock and double your insight and understanding about whether or not to invest in it.
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How often you have felt tired of going to your place of work almost daily, rain or sunshine? Invest in stocks and you could be in a position to sit back at your home with your kids and earn more than your business! Further, imagine the money automatically coming into your bank account as often as you wished! This is neither is hypothetical situation nor a pipe dream. Millions of people across the world are making money sitting at their homes, playing with their kids or vacationing on a cruise. This is a very practical scenario.
You can become an owner of a huge transcontinental company just by investing a few dollars. You can also leave it if you are not satisfied with its performance and buy the stock of some other company. You can make as much money as you wish by trading in stocks.
A stock is a fabulous financial instrument. It is one of the greatest tools ever invented to build the wealth of your dreams. Stock trading provides you the financial freedom that you can never imagine.
If you want to grow rich without the hassles that are an inevitable part of any business, you must start trading in stocks. Trading in stocks was considered a game of gambling only a few decades ago. To some extant, perhaps, it was. But it is no more a gamble now. It is not a game of blind man’s buff or hit and trial. It is almost a logical and scientific way of earning money. It is based on intelligent research, analysis and simple mathematical calculations. What was once considered only a domain of the filthy rich has become a vehicle for a common man to become a millionaire with patience and perseverance. Building wealth was never so easy.
When you launch your journey to economic freedom by trading in stocks, you must have a thorough understanding of stocks and how they trade on the stock market. Although trading technology has advanced with the growth of stock market, most of the stock traders still do not fully understand how to trade stocks. They glean their knowledge from the casual conversation among the chatting groups where most of the people themselves do not know what they are talking about.
There are two ways the stock trading is talked about in the discussion groups around the street corners. One is that Jack has made a fortune by trading in such and such stock because he knows the tricks and tips of the trade. The second comment may touch the other extreme: Bill has lost his shirt in stock market trading in a matter of days. Most of this misinformation stems from the urge to sensationalize the things. There is no doubt that stock trading is risky and can make and mar the fortunes, there are ways to make money and protect you against risks. This can be done through education about the stock market.
The stock education builds the foundation for taking the informed personal decisions. You do not have to depend upon the tricks and tips that float around the stock market all the time. Here is some basic information:
The best way to acquire knowledge in trading is to open an account with a brokerage firm. But before you do that it would be advisable to log on to Internet and do a comparison-shopping for the best brokerage firm. Check the website of each broker that you come across. Settle for the firm that charges minimum brokerage and offers maximum trading facilities.
The website of a good brokerage firm provides many options for novices to trade with minimum risks of losses. You can earn while you learn and grow gradually. The website should provide you all the education required to make you a successful professional stock trader
Browse through the website of the brokerage firm that appeals to you. Contact their customer support service and ask questions about why they should be preferred over their competitors.
Stock trading technology has made tremendous advances. Good stock brokerage firms offer cutting edge technologies for trading and research through charts, real time quotes, news flashes, streaming quotes and much more. They allow you to work at your own pace and budget.
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I have started trading on the stock market with no experience and knowledge at all. I paid a high price for my ignorance. Today I know much more and I have learned what it takes to be successful. Every trade is still a tough battle though.
If I had to give you just one tip then it is this one: Buy low and sell high. I am not sarcastic. This is all it takes to make money. A simple truth but very difficult to do. It will probably take you several years before you can say that you have begun mastering this rule.
I just recently read an article in a science magazine about how human beings make decisions. The studies have shown that the more complex a problem is the more impossible it is to make a rational decision. People who decided by listening to their guts did solve complex problems much faster and surprisingly much better than rational people. A really amazing result.
Buy low and sell high is such a complex problem. I would say trading stocks is one of the most complicated things on earth simply because you have an unlimited number of variables. Nobody can predict even the next five seconds of stock quotes. But this is exactly what you must do. Predicting if it goes up or down.
But how do you solve this problem? The article suggested that you do extensive research first. Learn everything you possible can about the stock market and the stock you want to buy. Try to analyze the facts. Feed your brain with information. Then let it go. Do not think about it at all. Take a pause, at least a day or more. Then decide by using your intuition.
Why should you do that? Because your rational intellect makes only a small percentage of your overall brain power. The intellect can not solve complex problems but your subconscious mind can. This is not some esoteric guru nonsense. It is a simple truth that every scientist knows. Nobody knows how it works though. But trading stocks is such a complex problem.
Highly Recommended Reading:
Online Stock Trading
Understanding The Stock Market
David A. Sorenger is an expert author on stock market related topics. His articles about stock trading, online stock brokers, stock options and penny stocks have been published on numerous web sites, forums, blogs and e-zines all over the Internet.
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In the three month period between Oct 19th, 2007 and Jan 18th, 2008, the S&P 500 index fell 14.1% and the Russell 2000 Value Index fell 19.5%. To understand what is likely to happen next, I studied the top 10 worst three-month-sell-offs since 1950. These sell-offs ranged between -13% to -30%. I found that in 8 out of the 10 occasions, the S&P 500 index rebounded by more than 20% in one year. The average rebound is 22.2%. Small Cap Value stocks did even better than Large Cap stocks (represented by the S&P 500). The Fama/French Small Cap Value benchmark portfolio rallied more than 30% in one year in 8 out of the 10 occasions. In the other two occasions, it increased 6.6% and 24.1% respectively. The average rally for the Fama/French Small Cap Value benchmark portfolio is 37.1%. (See Table below.)
A market sell-off is not a risk
As Demonstrated by history, most of the worst market sell-offs were followed by a substantial rally within a year. Many investors panicked and fled to cash at the nadirs of the sell-offs. By the time they mustered enough courage to get back in, they had missed the rallies. If you want to achieve long-term investment success, treat a market sell-off as an opportunity, instead of a risk.
Table: One-year returns after the worst 3-month sell-offs
3-month 3-month Subsequent Subsequent
ending decline S& 1y ret S/V 1y ret
Nov 1987 -30% 23% 32.7%
Sep 1974 -25% 38% 42.4%
Jun 1962 -21% 31% 37.9%
Jun 1970 -18% 42% 55.4%
Sep 2002 -17% 24% 41.4%
Sep 2001 -15% -20% 6.6%
May 1962 -14% 23% 30.6%
Oct 1990 -14% 34% 49.6%
Oct 1957 -13% 30% 50.5%
Nov 2000 -13% -12% 24.1%
Average -18% 22.2% 37.1%
* S/V = Fama/French Small Cap Value benchmark portfolio
Data sources: Fidelity MARE group, Prof. Kenneth French data library.
About the author:
Michael Zhuang is founder and chief investment scientist of of MZ Capital Management, LLC (http://www.mzcap.com), a registered investment advisor firm located in the suburb of Washington, DC. He developed the firm’s proprietary investment strategy, MDVFS, which has beaten the market every year since its inception. Michael writes an investment newsletter called The Investment Scientist, you can subscribe to his newsletter here. More articles on small value investing can be found in the author’s blog.
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