Basics of Stock Exchanges and Stock Market Trading

Wednesday, October 15, 2008
The phrase Stock Trading is commonly 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 an expression such as the stock market was down today it refers to the combined stock trading activity of many stock exchanges i.e. the New York Stock Exchange (NYSE), Nasdaq etc. in the United States.

Stock Exchange is the term for the physical location where the actual activity of stock trading/share trading or investing in stocks takes place. Most countries have many different stock exchanges and usually 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 exist throughout the world. It is possible to buy or sell stocks on any of them by having trading accounts with the various stock brokers. You can also get stock trading information from these exchanges. The only restriction is the opening hours of each exchange. For example, NYSE and NASDAQ allow stock trading operations from 9:30 a.m. to 4:00 p.m. Eastern Time from Monday to Friday. Other exchanges have similar opening hours based on their local time. If you want to trade on the Hong Kong Stock Exchange your order will be executed sometime between 9:30 p.m. and 4:00 a.m. New York time.

The major stock exchanges of the world are located in 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 the United States. The major exchanges in the US are the NYSE, NASDAQ, and Amex.

By providing a centralized, ready market for the exchange of securities, stock exchanges greatly facilitate the financing of business through flotation of stocks and bonds. However, speculative stock trading can sometimes accentuate the instability of an economy. The reality of the Great Depression was emphasized by the stock market crash in 1929. The interstate sale of securities and certain stock exchange practices in the United States are regulated by federal laws administered by the Securities and Exchange Commission.

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

Fluctuations in stock prices are also driven by supply and demand, which in turn are determined to a large extent on investor psychology. Seeing a stock rise in price may cause investors to jump on the bandwagon and this rush to buy drives the price even faster. A falling price can have the same effect. These are short term fluctuations. Stock prices tend to normalize after such runs. Hence, to predict possible upturns or downturns in the stock markets, it becomes imperative to track and analyze stock trading information.

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

The FOREX is the biggest (in terms of value of trades) investment market in the world. FOREX traders buy one currency against another and can profit from small changes in value. Most FOREX trades are entered and exited in one 24 hour span, and traders have to keep a close watch on the market in order to make profitable trades.
Futures & Options

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

The Options Market is similar 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 certain time frame.

All three of these markets are quite risky and require considerable knowledge and experience to prevent substantial losses. They also require close attention to market movements. Stock Investments, on the other hand, are less risky because movements of the market are usually gradual. Although short term investment strategies are possible, most view stocks as long term investments. But whatever your financial objectives may be, try to use a stock trading system. This will help you in maximizing your profits and keeping your investments safer.


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