Basic Stock Trading Guide

By Khieng Chho

Stock trading is the commonly used term to refer to the practice of selling or buying equities or stocks or shares in corporate companies in stock exchanges or bourse operating venues.

Through the practice, investors can place money or investment in several or particular company.

A gain or a loss in stock trading is accumulated on the difference between the sales price and the purchase price.

Stock trading is usually conducted during daytime. That is because it is assumed that during daytime, most and major businesses around the globe normally conduct businesses.

There are various stock trading venues. In one country, there must be at least one stock trading venue where equity trading is transacted for the entire country.

But there are countries that host more than one number of stock trading venues. The United States for example has more than one stock trading venue other than the very popular New York Stock Exchange.

In the United States, they also have the Nasdaq Stock Exchange where minor stocks or small-capilatlization companies are traded.

In Australia, there is the Australian Stock Exchange and other exchanges. It is because like the United States, Australia is a very large country that consists of several huge states.

Making investments

Investors have just to make connections to brokers in order to infuse capital or buy shares in stock trading activities. Brokers are accredited individuals or firms that are specifically tasked or commissioned to do such transactions.

Before brokers are allowed to be in between you and the companies where you may want to buy stocks from, they undergo intensive and comprehensive training.

Stock trading requires a lot of knowledge and meticulousness. Because there a lot of papers and documents that you have to process, the broker should be able to handle each with utmost care and certainty.

Before you are able to buy equities or stocks through stock trading activities, you should be able to provide a minimum capitalization.

The documents expected or required from you should also be turned over to your official stock broker so that no legal or civil issues will arise to disturb you in the future.

Buying stocks

Before buying stocks, you are expected to do your own homework. That means, you are expected to research and fin out about the background of the company where you want to invest your money in.

It is up to you where you will place your money into. Be sure that you do an intelligent decision because your returns or profit from the stock trading transaction will rely on this.

To buy stocks, you have to inform your broker partner about your intention and how much you are willing to buy for a particular stock or equity.

Be sure to be equipped with all the necessary information and data before hand. For instance, buying stocks from a company who is in the brink of bankruptcy will not be a sound investment decision.

By doing so, you take your money to risk, because your investment might go down or disappear together with the troubled company.

Sound companies have the downside. Their stocks usually are more expensive compared to their peers or counterparts. But investments are safer in them usually.

Whatever your decision might be, find the best stocks and invest on it. Check the news regularly to find out more about the company you have invested in.

Khieng 'Ken' Chho - Stock Trading

For related articles and other resources, visit Ken's website: http://stock-trading.onew3b.net

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Forces that Move Stock Prices

By James Andrews

Among the largest forces that affect stock prices are inflation, interest rates, bonds, commodities and currencies. At times the stock market suddenly reverses itself followed typically by published explanations phrased to suggest that the writer’s keen observation allowed him to predict the market turn. Such circumstances leave investors somewhat awed and amazed at the infinite amount of continuing factual input and infallible interpretation needed to avoid going against the market. While there are continuing sources of input that one needs in order to invest successfully in the stock market, they are finite. If you contact me at my web site, I’ll be glad to share some with you. What is more important though is to have a robust model for interpreting any new information that comes along. The model should take into account human nature, as well as, major market forces. The following is a personal working cyclical model that is neither perfect nor comprehensive. It is simply a lens through which sector rotation, industry behavior and changing market sentiment can be viewed.

As always, any understanding of markets begins with the familiar human traits of greed and fear along with perceptions of supply, demand, risk and value. The emphasis is on perceptions where group and individual perceptions usually differ. Investors can be depended upon to seek the largest return for the least amount of risk. Markets, representing group behavior, can be depended upon to over react to almost any new information. The subsequent price rebound or relaxation makes it appear that initial responses are much to do about nothing. But no, group perceptions simply oscillate between extremes and prices follow. It is clear that the general market, as reflected in the major averages, impacts more than half of a stock’s price, while earnings account for most of the rest.

With this in mind, stock prices should rise with falling interest rates because it becomes cheaper for companies to finance projects and operations that are funded through borrowing. Lower borrowing costs allow higher earnings which increase the perceived value of a stock. In a low interest rate environment, companies can borrow by issuing corporate bonds, offering rates slightly above the average Treasury rate without incurring excessive borrowing costs. Existing bond holders hang on to their bonds in a falling interest rate environment because the rate of return they are receiving exceeds anything being offered in newly issued bonds. Stocks, commodities and existing bond prices tend to rise in a falling interest rate environment. Borrowing rates, including mortgages, are closely tied to the 10 year Treasury interest rate. When rates are low, borrowing increases, effectively putting more money into circulation with more dollars chasing after a relatively fixed quantity of stocks, bonds and commodities.

Bond traders continually compare interest rate yields for bonds with those for stocks. Stock yield is computed from the reciprocal P/E ratio of a stock. Earnings divided by price gives earning yield. The assumption here is that the price of a stock will move to reflect its earnings. If stock yields for the S&P 500 as a whole are the same as bond yields, investors prefer the safety of bonds. Bond prices then rise and stock prices decline as a result of money movement. As bond prices trade higher, due to their popularity, the effective yield for a given bond will decrease because its face value at maturity is fixed. As effective bond yields decline further, bond prices top out and stocks begin to look more attractive, although at a higher risk. There is a natural oscillatory inverse relationship between stock prices and bond prices. In a rising stock market, equilibrium has been reached when stock yields appear higher than corporate bond yields which are higher than Treasury bond yields which are higher than savings account rates. Longer term interest rates are naturally higher than short term rates.

That is, until the introduction of higher prices and inflation. Having an increased supply of money in circulation in the economy, due to increased borrowing under low interest rate incentives, causes commodity prices to rise. Commodity price changes permeate throughout the economy to affect all hard goods. The Federal Reserve, seeing higher inflation, raises interest rates to remove excess money from circulation to hopefully reduce prices once again. Borrowing costs rise, making it more difficult for companies to raise capital. Stock investors, perceiving the effects of higher interest rates on company profits, begin to lower their expectations of earnings and stock prices fall.

Long term bond holders keep an eye on inflation because the real rate of return on a bond is equal to the bond yield minus the expected rate of inflation. Therefore, rising inflation makes previously issued bonds less attractive. The Treasury Department has to then increase the coupon or interest rate on newly issued bonds in order to make them attractive to new bond investors. With higher rates on newly issued bonds, the price of existing fixed coupon bonds falls, causing their effective interest rates to increase, as well. So both stock and bond prices fall in an inflationary environment, mostly because of the anticipated rise in interest rates. Domestic stock investors and existing bond holders find rising interest rates bearish. Fixed return investments are most attractive when interest rates are falling.

In addition to having too many dollars in circulation, inflation can also be increased by a drop in the value of the dollar in foreign exchange markets. The cause of the dollar’s recent drop is perceptions of its decreased value due to continuing national deficits and trade imbalances. Foreign goods, as a result, can become more expensive. This would make US products more attractive abroad and improve the US trade balance. However, if before that happens, foreign investors are perceived as finding US dollar investments less attractive, putting less money into the US stock market, a liquidity problem can result in falling stock prices. Political turmoil and uncertainty can also cause the value of currencies to decrease and the value of hard commodities to increase. Commodity stocks do quite well in this environment.

The Federal Reserve is seen as a gate keeper who walks a fine line. It may raise interest rates, not only to prevent inflation, but also to make US investments remain attractive to foreign investors. This particularly applies to foreign central banks who buy huge quantities of Treasuries. Concern about rising rates makes both stock and bond holders uneasy for the above stated reasons and stock holders for yet another reason. If rising interest rates take too many dollars out of circulation, it can cause deflation. Companies are then unable to sell products at any price and prices fall dramatically. The resulting effect on stocks is negative in a deflationary environment due to a simple lack of liquidity.

In summary, in order for stock prices to move smoothly, perceptions of inflation and deflation must be in balance. A disturbance in that balance is usually seen as a change in interest rates and the foreign exchange rate. Stock and bond prices normally oscillate in opposite directions due to differences in risk and the changing balance between bond yields and apparent stock yields. When we find them moving in the same direction, it means a major change is taking place in the economy. A falling US dollar raises fears of higher interest rates which impacts stock and bond prices negatively. The relative sizes of market capitalization and daily trading help explain why bonds and currencies have such a large impact on stock prices. First, let’s consider total capitalization. Three years ago the bond market was from 1.5 to 2 times larger than the stock market. With regard to trading volume, the daily trading ratio of currencies, Treasuries and stocks was then 30:7:1, respectively.

James A. Andrews publishes the Wiser Trader Stocks and Options Newsletter. Site contact, http://www.WiserTrader.com. © 2004 Permission is granted to reproduce this article in print or on your web site so long as this paragraph is included intact.

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Online Futures Trading Brokers

By Max Bellamy

The World Wide Web is filled with hundreds of online futures trading brokers who offer services to hedgers and speculators wishing to play the futures markets. To access these brokerages and have round-the-clock information at your fingertips, it is necessary to make sure that your computer has the right configuration in order to run the trading platforms that you will have to use in order to trade in futures.

The services vary depending upon the investor’s depth of knowledge and support he requires, as well. Most have a quiz that you can take in order for them to judge your level of knowledge and recommend the type of account or trading platform you should opt for. When choosing a trading platform, you will be asked about your trading experience, frequency of trades, estimated monthly volume of contracts, type of trade – either electronic futures or pit-traded futures -- and the amount of risk capital as well. The platforms that usually run on Java Applets will provide information such as single and multiple account trading functionalities, accessibility to multiple markets, and updated analysis on the markets. They will also have information from a number of stock exchanges incorporated into the platform.

If you wish to deal with pit-traded futures rather than electronic, another trading platform will be made available to you which will allow you direct access to your representative on the floor of the stock exchange.

All these services come along with the option of having a broker give you advice on the buying and selling of futures as well. You can choose the broker by filling out questionnaires available on the site. This will allow you to choose the broker you feel would fit your profile and understand your demands perfectly.

Thus, with the right amount of capital and knowledge of the futures market, plus the right brokerage, you will be able to turn in profits with just the click of a button!

Online Futures Trading provides detailed information on Online Futures Trading, Discount Online Futures Trading, Futures Trading Online Analysis, Online Futures Trading Brokers and more. Online Futures Trading is affiliated with Free Online Stock Trading.

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Swing Stock Trading

By Thomas Morva

Swing stock trading is a short-term method in which stocks are held for a few days or weeks. This trading style lies somewhere between the day trading and long-term investments. A day trader may hold on to a stock only for a few minutes or hours, whereas the long-term investor may hold the stocks for months. Swing stock trading depends on the minor variations in the stock prices. It is never dependent on the market index. Profits through swing stock trading are earned irrespective of the market conditions.

A swing trader capitalizes on the predictable constant market imbalances, which the day trader or long-term investor may not care about. He/she values the short-term momentum and price patterns of the stock, rather than its fundamental value. In swing stock trading, the risks are lower. There is less competition from the big time investors. A person engaged in swing stock trading does not wait for the perfect timing, when stocks may reach sky-high heights or rock bottom. He/she simply trades them when there is a significant price fluctuation. By ignoring the perfect timing, though, the trader may miss an opportunity for earning huge profits. Although swing stock trading may not guarantee the large profits earned by long-term investors, it assures small profits at short intervals.

Swing stock trading is best suited for the newcomers in the stock market. The low-risk and quick returns prove attractive for the beginners. Even the medium and top level players in the market can occasionally leverage on this trading style to earn some respectable profits. Moreover, swing stock trading is a good motivator for the traders due to the quick results that one can get within a few days. A trader wishing to succeed in this trading system must choose the right market and the right stocks. Swing trading cannot be applied in a market where the stock prices are rising or falling rapidly. Here, the stock prices tend to go in one direction without fluctuating. This kind of market is more suitable for the long-term investors. A swing trader must deal with stocks that are actively traded in most stock exchanges. These shares usually belong to firms that have large market capitalization.

Swing Trading provides detailed information on Swing Trading, Swing Trading Strategy, Swing Stock Trading, Swing Trading Systems and more. Swing Trading is affiliated with Option Stock Trading.

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Invest In Penny Stocks - How To Buy Penny Stocks Online?

By Mike Singh

Ask any investor what a stock trading under $5 is and they will tell you it is a penny stock, microcap stock, or nano stock. These three terms are for the most part interchangeable. However the broader definition of a penny stock refers to a business’s aggregate value of its outstanding common shares, are more commonly known as its market capitalization rather than its stock price. However there is no set term that completely defines a penny stock.

To calculate the market capitalization of a company (the market cap) you must multiply the stock price of the company by the amount of shares that are outstanding. By carrying out this calculation you can find out what the total dollar value of all shares in the company are at any given moment in time. Penny stocks are not traded on a stock exchange like other stocks but they are traded in the over-the-counter (OTC) market. For the trading of most stock an agent will act on the investors behalf and arrange a transaction directly between the investor and a third party. The broker then receives a commission for facilitating the trade.

A large proportion of all penny transactions are charged by brokers as principle transactions. This means that the broker is not paid any commission but rather makes its money on the spread, and by buying and selling at advantageous times. There is no single price at which penny stocks are bought and sold, but rather there are a number of different prices. The difference between the bid and ask price is known as the spread. The spread of many penny stocks are usually around 25-33% but can often be 50-100% or even more. There are also always two bid and two ask prices, these are known as the inside and outside bid and ask. Keep in mind that it is the outside bid and ask that is of most interest generally. Penny stocks are also subject to mark up pricing. This is where a broker has held the penny stock in its account and has therefore taken some of the risk associated with market price fluctuation.

Although penny stocks are quite complicated and there are many problems associated with trading penny stocks as well as millions of dollars of loss, many companies still trade in them because they can help for example, struggling companies just starting up. The best way of finding a good investment is by consulting with your broker. However in the penny stock market be very wary of brokers who are only trying to sell and may not have your best interests in mind.

Check http://www.stock-trading-made-ez.com/ for information on how to invest in penny stocks and how to buy penny stocks online.

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