One thing that we hear about daily is the stock market. You needn’t be an investor, either. Just listen to the news. You may have only a casual interest in the stock market, or your concern for what goes happens on Wall Street may run a bit deeper. If you have started investing, or are considering it, here are some of the things you must know about the markets before you go any further.
First, you have to know what the stock is. Stocks, also called equities, are small pieces, or shares, of ownership in a company. Companies sell these to raise money for any number of reasons, from financing large capital purchases to expansion of their operations. Trading ownership in a company for money like this is called equity financing.
For every good or service sold on earth there needs to be a market, even if that market is only a stand at the side of the road, and stocks are no different. The places where people do this for stocks is known as the stock market. There are actually hundreds of places throughout the world where people can buy and sell stocks, but the largest markets are found in the world’s financial centers, such as New York, London, Tokyo, and Hong Kong.
Since the dawn of the computer age, there are also virtual stock markets. Here, the trades are no less real, only you won’t find pits full of frenzied stock traders haggling over prices. The NASDAQ is the best known of these . Many very large companies are traded on the NASDAQ, including such corporate giants as Microsoft, Vodaphone, BP, and Apple Computers. Suffice it to say that simply because there is no physical building does not mean a virtual market such as NASDAQ shouldn’t be taken seriously. You can make trades for companies here as easilly as you can for those at physical markets, such as the New York stock exchange.
Why are there so many different stock exchanges? Well, in most cases a company will be traded at the exchange in its home country. Ford Motor Company for example, trades at the New York Stock Exchange, while Barclay’s Bank and British Airways trade on the London Stock Exchange.
Any trade needs two parties, a buyer and a seller, and stock trades are no different. If you’re buying or selling shares on any of the larger exchanges, you won’t do the buying and selling directly, you’ll go through an intermediary called a broker. Brokerage firms have what is called a “seat” on the exchange, meaning they are authorized to do actual buying and selling on other’s behalf.
As an investor, you have to choose what stocks to buy or sell and when to trade them . You will need to do your due dilligence when choosing stocks to buy, when to buy them, and just as importantly, when to unload them. The best online stock brokers have a tremendous set of tools at your disposal for this purpose. With a few mouse clicks, you can find out more about a stock, a market segment, or any number of different parameters than could be done by the most sophisticated investor just 25 years ago. There is even powerful software available to help make easy sense of all this information, and help you make buy and sell decisions.
There are many different investment philosophies. Some people prefer to buy thier stocks and hold them for the long term, making money on the long term growth of the company and dividend payments (companies often pay out small portions of their profit to shareholders in the form of payments called dividends). Others would rather look for fast growing companies in fast growing markets and capitilize on their metoric rise. Most choose to diversify, having stocks from many different companies in different industries and countries. This helps ensure that a problem with one company, industry, or area will not wipe out their investments.
There are two general ways you can trade stocks. You can have a full service broker that assists you in determining a company in which to purchase stock. If you’re more the type that likes to make their own decisions you’ll probably use a discount broker that will allow you to pick your own stocks, then buy them through a telephone call or by going online to the broker’s website. Either way the broker makes the transaction .
There is usually some sort of charge or fee paid to the broker to make a stock trade. The full service broker will typically charge more to cover their greater service. The dawn of the Internet has allowed people to have huge amounts of industry, market, and company data at their fingertips. This enables people to do their own research that was simply not possible 20 years ago.
How to Choose a Stock -
One of the main criteria in choosing a company in which to buy stock is to know why you’re buying it. Are looking to fund retirement that’s years away, or are you trying to make money relatively quickly. You may want to choose funds on your employer’s 401(k) plan. Is there an 801(k) plan? Perhaps you need to preserve savings you have in the face of possible inflation. Strong future inflation could be a very real concern as the U.S. government continues to print and spend money for various bailout and stimulus packages. Maybe you want to eliminate debt and finally begin saving for retirement.
Once you’ve chosen a company in which to invest, you’ll need to contact your stock broker to purchase shares. They make the trade for you. You’ll be able to choose from several kinds of orders; you’ll place either a sell or a buy order, depending on weather you’re selling or buying. There can also choose weather you want to place a market or limit order.
What are Market and Limit Orders?
A market order is executed at the market price as soon as the trade can be made. With a limit order, you can set limits on how much you want to pay or sell for. If the stock goes above the limit you set in the case of a buy order, the trade will not be executed. This protects you from paying more than you want to for a particular stock in the event the price is rapidly moving.
One of the keys to trading stocks is to know why you’re trading, and choosing the broker that most closely matches your needs. The power of the Internet has been harnessed by the investment community. There is a plethora of information available at your fingertips these days. That, coupled with the rise of online discount brokers, has enabled a huge investor driven movement where individuals can choose their own stocks and request their own trades. The key to success here is to carefully match your broker with your requirements. Pay close attention to the research tools they offer, and how user-friendly their online interface is. You should also check their rates. Online brokers have different cost and fee structures. Some, for example, will charge less per trade, but charge for every trade, while others will give you a certain number of free trades, but charge more for trades you make after you ahve used up the free ones. If you only make a few trades a month, the latter would be a better choice, all else being equal. On the other hand, frequent traders would be better served by paying less per trade, but paying for every one .
Many people view stock trading with fear and skeptiscism, but there is no reason to do so. Many beginning stock investors have fantastic track records, whether they choose the stocks on their own, use software for help, or rely on their stock broker for advice. Even in today’s economy there are still many truly excellent companies that you can buy shares in. No less an investor than Warren Buffet said that you should buy stocks in a company as if the stock exchange didn’t exist, and you weren’t going to sell it. Buy shares in a company that represents true long term value. Because of the economy, many companies like this can be had for a relative song.
If you’re ready to start trading, you will need to find a stock broker. The problem that many peopel face is that there are dozens of good stock brokerage firms out there, with some being better suited to their situation than others . The right broker for your specific needs could easily make the difference between your success and failure as an investor. You simply can not afford to take a chance with this . Check the online discount broker comparison at the Online Stock Broker Comparison Guide now to find the right broker for your specific situation.
