How Does the Stock Market Work?

March 10, 2010 · Posted in Stock Market · Comment 

Understanding the stock market can be pretty daunting for a beginner. But to understand how it works you must try and understand the mechanics behind the market. So how does the market work?

A stock market works on the basic principles of demand and supply. The key players are the buyers and sellers who determine prices through their trading behavior and the brokers who facilitate stock trades. Understanding how a stock market works is the first step to understanding how to invest in the market for financial gain.

What are Stocks?

A stock, also known by the terms share and equity, represents ownership in a company. When companies want to expand their business and require capital to do so, they often turn to putting up parts of the company for sale to the public and asking them to buy a “share” of the company. Thus all the people who hold shares in a company, collectively the shareholders, are part owners and receive a percentage of the company’s earnings in the form of dividends. Therefore, stock is an investment tool for the shareholders and a financing tool for the company.

How Does the Stock Market Work Like an Auction House?

The market works like an auction house since shares are sold to the highest bidder. Buyers place bids on shares and sellers sell the shares around the current share price. The stock is sold to the highest bidder. The price of share is determined by the fluctuations between demand and supply. Generally, a company that is doing well economically will see a higher demand for its shares than a company in financial trouble. The same can be said of the economy: a recessionary economy will see lower demand while a healthy booming economy will see a high demand for investment.

Stock Trading Basics

Stocks are traded on the stock exchange (also called the stock market). This is place where brokers facilitate orders from buyers and sellers.

Today stocks are also traded electronically, so the movements of the stock, while not visible physically, can still be tracked digitally. Many people find it easier to invest in and monitor their stock portfolio through the internet since it is updated in real time.

It is important to note here that although a company directly releases its first stock to the public through an IPO (Initial Public Offering), the stock traded on the stock exchange has no direct involvement of the company and is merely a transaction between the buyer and seller.

What are Stock Quotes?

If you open the newspaper to the financial pages or check out any of the numerous online finance websites, chances are that one of the first things you’ll see is a table with many alpha-numerical values in columns and rows. This is a stock table. The stock table gives the following information: name of company, 3 letter ticker symbol of company, the highest and lowest price of that stock in the past week (or any other time frame), the dividend paid out, the stock’s yield calculated as a percentage of dividends per year divided by dividends per share, the closing share price, and the net change in the dollar price of the share (whether positive or negative – where positive is denoted with a green up arrow and a negative with a downward red arrow)

How Does the Stock Market Work to Determine Stock Prices?

Prices are representative of demand and supply. High stock demand combined with low supply pushes prices up while a low demand combined with high supply makes prices go down.

Perhaps the most important question is how to determine whether the price of a particular stock will go up or down. Understanding how the stock market works will help you to determine the stock’s price trends and place you in a better position to make your fortune on the stock market.

Author: Kelly Clifford
Article Source: EzineArticles.com
Provided by: Guest blogger

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Day Trading – What is the Key to Successful Day Trading? Part 2

February 11, 2010 · Posted in Penny Stocks · Comment 

If you’re just starting out trading online more specifically day trading then it’s always advisable to start out with low volatility stocks such as utilities and closed ended funds. This way you can develop your skills and expertise while improving your experience before jumping into the volatile but more profitable Dow Stocks like technology and momentum plays. But you must keep to your risk management plan, and keep emotions out of it.

When you’re just getting started always spend at least a few weeks paper trading online before risking your own money. Paper trading is simply placing trades live in the market place but with “play money” so you will buy and sell as normal in real-time without risking any of your own money. This gives you practice and help you to understand in a practical and live manner how the stock market works, and how you make money from it. Once you have had a few trades under your belt, paper trade that is, and you feel more comfortable making money, then I always recommend that you start small with your own money. Never risk more money than you can afford to lose, this is rule number two when it comes to day trading.

Always keep your emotions outside of your trades. To not get caught up in fear of losing, or greed of gain. These two components are the driving forces of the stock market, greed and fear. If you can discipline yourself to trade outside of these emotions then you can use it to your advantage.

Use a reputable and experience Day trading platform. There are many trading platforms online, so make sure that you do your due diligence before committing to one. You will always have the opportunity to paper day trade them so you will get a feel for how quick they place your trade and how fast they sell your position. The this is important because if the market should move against you, you will want to know that you can exit a trade as quickly as possible without putting too much of your capital at risk.

Day Trading can be fun and very profitable but you must also assume the risks, and know that the markets are volatile and can change in an instant. That is why day trading appeals to so many people because you will not have your money in the market for more than a few minutes at any given time, and by the time the bell rings, you should have sold all your position and be free and clear from the market, ready to start a fresh the next day.

The second key to successful day trading is to use a reliable trading software program that has proven results in helping you to place profitable trades.

Author: Timmy I Nelson
Article Source: EzineArticles.com
Provided by: Programmable Pressure Cooker

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Internet Day Trading – The Internet – Your Best Friend and Your Worst Enemy

February 10, 2010 · Posted in Penny Stocks · Comment 

Successful day trading depends on many different parts and components in order to work. Internet day trading relies heavily on using your computer to place trades, buy and sell in order to make a profit. Most Internet Day traders will tell you that trading online is both a blessing and a curse, one minute the Internet is your friend and the next it could be your worst enemy. As a day trader you have to make sure you use the tools to your advantage.

Trading online is the easiest way, the cheapest way, the quickest way and one of the most transparent ways to trade stocks. Most day traders use the Internet to do their buying and selling of stocks. When it comes to trading online, timing is everything, it is critical to know when to buy and when to sell, even though the Internet is fast, and the transfer of information seems real time, most in the industry will tell you that, that real-time may not always be as “real time” as you think. So bearing in mind that there could be a delay when you buy and sell its important to get in front of the wave when buying and to get off of the wave before it crashes on the shore.

Unless you have a good knowledge as to how the stock market works and what or who drives trade and set the rules you can easily become a victim of the stock market and within minutes lose everything. Most newcomers to day trading end up losing more money than they had when they first begun.

If you’re starting to day trading and you’re thinking about Internet day trading then there are a few things that you need to have in order to be successful. I always recommend that day traders have at least two computer systems, and keep them separate and independent of each other with broadband, or a DSL, or cable connection,the faster the better. High speed Internet can mean the difference between getting ahead of a wave and jumping on when the wave has already passed. Use a reliable Internet service provider, and check to see what the down times percentage is for your area. You want to make sure that your Internet connection is consistent, fast, and are not interrupted during peek trading hours of the day.

Shop around for a very good trading platform that have many years of experience within the industry, and deal specifically with the day traders. Before you expose your real money, do some paper trading on the platform you have chosen, to test the speed and accuracy at fulfilling your bids and requests. How long does it take to sell when you want to sell, and to buy when you need to buy? Paper trading will give you a great barometer, and a good feel for the trading platform that you choose and the tools and resources that they may have available, all without risking any of your own money.

Internet day trading, is not for the faint of heart, and your internet, and hardware, and software are a few of the element of a multifaceted industry. In addition to your Internet connection you will have to deal with things like when to buy, when to sell, late fills, Gap openings, margins calls, the bid ask spread, trading halts, and many more such moving parts in your quest to make money. Other things like mood swings, control of your emotions, frustrations, elation are things that will challenge you from day-to-day.

Internet day trading is not easy but if you can master the techniques, you can become very successful and make quite a bit of money.

Author: Timmy I Nelson
Article Source: EzineArticles.com
Provided by: Cool mobile gadgets

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