Stock Markets
The term 'Stock Market' is commonly used
to encompass both the physical location for buying and selling 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 activity of many stock exchanges i.e. the
New York Stock Exchange (NYSE), Nasdaq etc. in the United States.
The 'Stock Exchange' is the correct term
for the physical location for trading stocks. Each country may 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 exist throughout the world
and it is possible to buy or sell stocks on any of them. The only restriction
is the opening hours of each exchange. Both the NYSE and Nasdaq for
example operate 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.
Stock markets closely follow the economic
health 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. Inflation and unemployment are rising and stock prices
are falling.
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.
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.
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.
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. Stocks,
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.
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