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Stock Market Basics
> stock markets
What Is A Stock Market?
What is a stock market? We hear the term thrown around loosely when
news reporters report that 'the stock market was down today' as if
there was only 1 equity market. Fact is, there are several stock
markets in North American and several in major centers through
Europe and Asia, including Frankfurt, London, Japan, and the
Malaysian Stock Exchange.
The major indices in North America include the Toronto Stock
Exchange, CDNX, the Montreal Stock Exchange (which recently
announced it was going to merge with the TSX), Nasdaq, AMEX and the
grandaddy of them all: the Dow Jones. Used correctly, the term stock
exchange accurately describes what goes on within each of these
locations.
For the majority of North American stock exchanges, they are open
between 9:30am - 4pm, Monday to Friday.
So what happens at these exchanges? Like any market, there are
bidders and sellers trying to haggle over the price of an item, in
this case, shares in a publicly traded company. If the bidders are
willing to meet the sellers price, the share price moves higher,
while the stock price moves lower if the seller agrees to the buyers
price. Depending on the economy, company fundamentals and recent
news, there may be more traders interested in buying or selling
shares. Generally, if there is a downtrend in the economy, the
markets experience a bear market, which suggests that even good news
is usually discounted, and sellers usually win the day. In a bull
market, bad news is discounted, and good news is usually
exaggerated. Think of the dot com bubble back in the late 1990's.
 Investor psychology also plays a part in determining the share
price. Greed and fear help to exaggerate share prices. While supply
and demand for shares plays a role, there is nothing like old
fashion fear of missing the chance of a lifetime to pump up the
share price, or the fear of losing whatever capital is left after
there has been bad news to push the share price even lower.
These fluctuations create opportunities for smart investors.
Buying and selling shares are not the only way to make money in the
stock market. There are other types of markets including the Foreign
Exchange Market (Forex), Futures Market and the Options Market.
The futures market deals with contracts to buy and sell goods at
specified prices and times. A farmer for example, may want to trade
futures based on the future price of corn. This allows him to lock
in prices for future delivery. Of course, this can and usually does
change on a weekly basis, depending on current events and weather
patterns. Most future traders however trade the contract, not the
physical goods.
Forex is by far the larges investment market in the world today.
Simply put, Forex trading allows an investor to buy currency against
the other, providing a potential return for the trader. If you
believe that the US dollar will gain against the Euro, you can buy
US dollars and sell if the US dollar in fact gains. Its one of the
riskier methods of investing. While it can provide amazing returns,
it can leave you in the poorhouse just as quick.
The Options market gives traders the right, but not the obligation
to trade a stock for a certain price, before an agreed date. Most
savvy traders will go long on a stock, but buy a put option
(basically allowing the trader the right to go short on the same
stock). This provides the necessary insurance incase the stock
declines.
A smart investor knows the risks before they invest in the stock
market. Whether penny stocks, large caps or futures, they weigh the
risk before making their move.
There is plenty of money to be made in the stock market if you know
what to look for.
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