Trading

Trading: Understanding The Stock Market

The Stock Market: An OverviewThe stock market is the term given to a collection of exchanges where stocks in various companies are traded. They exist globally and all developed nations have at least one stock exchange, if not several. The key financial centres of London, Tokyo, New York and Germany are well known but this is not the full list as you can find them in Canada, Brazil, India, and many other nations.The main two exchanges in the United States are the New York Stock Exchange (NYSE) on Wall Street and the NASDAQ which used to be aimed at the over-the-counter (OTC) market but has evolved to include other securities though it tends to list the technology stocks more than any other.

This is in contrast to Investment bankers who focus more on assisting companies who are looking to get themselves listed via an IPO (Initial Public Offering) or with companies going through mergers and acquisitions

The stocks themselves must meet the criteria of the exchange before they can be listed. There are other exchanges and it can get confusing as to where a stock is actually listed.Regulation and Oversight:Throughout the world there are regulatory bodies managing and controlling the stocks. In the United States this body is the Securities and Exchange Commission (SEC) and their remit is to ensure that the interest of the investors is protected, amongst other things. Their statement says that it has the “mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation”. One of the most important things to note is that the SEC is not aligned with government or any political parties.Types of Securities:In general securities are either listed or are over-the-counter. It is the former one that is most associated with stock markets and trading.

This gives an indication of the overall health of the markets and how much confidence investors have in general

The listed securities have to meet various reporting and financial requirements before they can be listed and are then regulated by the SEC as well as the exchange on which they are listed. The securities themselves can be in any type of companyThe other type of security are the OTCs which are securities for non-listed companies, can even be private or small and closed businesses who are too small or don’t meet the full criteria for listing on the full exchanges but want to establish some outside investment. These companies are typically listed on the ‘pink sheets’ but information can be minimal and care has to be taken when selecting an OTC especially as many companies in bankruptcy are listed on the “pinks”.Who Does What:Stock brokers are also referred to as ‘registered representatives’ in the US. They are licensed by the boards and the SEC and their role is to buy and sell securities on behalf of investors. They can either solely act as an intermediary and buy and sell precisely those securities they are told to buy for you or can be more proactive and trade on your behalf picking stocks that fall within a pre-agreed criteria.

As an investor it is up to you to decide whether to follow the advice or go with your own assessment

Stock analysts are the people who verify the data and research into the numbers behind the businesses. They will write research reports and issue statements that declare whether an investment opportunity is a ‘buy’, ‘sell’ or ‘hold’. As an investor it is up to you to decide whether to follow the advice or go with your own assessment. Obviously it is quite possible to come across contradictory opinions for the same stocks as so much depends on surrounding factors and personal opinion on the ‘softer’ side of corporate information and expectations.Portfolio managers are again qualified traders whose role is to run a pool of money. This can either be an individual’s portfolio or one for an investment company. They are used by many of the areas such as mutual fund companies, hedge funds and pension plans as the professional responsible for executing and managing their trades. This is in contrast to Investment bankers who focus more on assisting companies who are looking to get themselves listed via an IPO (Initial Public Offering) or with companies going through mergers and acquisitions.Measurements:There are a wide variety of indexes which are the measures used to assess changes in the stock market. These indexes are made up of a pool of stocks and indicate the strength of them on a comparative basis. The most famous one is the Dow Jones Industrial Average (DJIA) which is a compilation of the 30 largest stocks in the US. The numbers reported every day for the Dow demonstrate how well those 30 stocks have performed that day. This gives an indication of the overall health of the markets and how much confidence investors have in general.An alternative to the Down is Standard and Poor’s SP500 which is built up from the 500 largest US capitalization stocks traded. When taken together the Dow and SP are acknowledged to give a good indication as to the overall health of the nation’s economy. There are many other indices that gather data on mid-sized or small companies, technological stocks or many other criteria.Conclusion:Trading on the stock markets nowadays truly is a global affair with equities for corporations, large and small, being traded. There are numerous players who all work together to generate a market that is efficient and enables opportunities for investors big and small, institutional and private to participate. The indexes used to measure the market are a valuable barometer of the nation’s and global economic health and from these and statements made in reference to the nation. It is for this last reason that even if you don’t have the resources or don’t have the desire to invest it is still recommended to keep track of and try to understand the mechanisms of the stock markets as they can help guide towards logical financial positions and decisions.

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