Stock Market Investing and Trading



  • Trading shares is the buying and selling of shares of stock in various companies. There are stock exchanges in the United States, Europe, Asia and other smaller global exchanges. Trading can be done through mutual funds or through preferred stock and options trading. Commodities and currencies can also be traded through stocks.

    The term "stock" simply refers to the proportional ownership one's shares represent of the net assets and earnings power of a company. In a mutual fund or exchange traded fund, the assets are the sum total of all the assets that were purchased by the stock's proceeds. This refers to the stocks, bonds, currency and commodity values priced at their market value. Stock is valuable as far as it represents the tangible value of the assets underneath it, but a stock price may not equal the value of the underlying assets. Thus, stock prices can become overpriced or underpriced.

    Shareholders may include large institutions, pension funds, mutual funds and individuals.

    What Gives a Stock Value?

  • Share prices traded in the public market have more value than those in the private market because they have passed a higher scrutiny of legal, regulatory and accounting standards and have greater liquidity. Market experts must opine as to whether or not the corporation has created a structure that is sound and meets regulatory approval. This gives stock value.

    Stock is also given liquidity by the market makers, who attempt to keep the stock at a market clearing price between buyers and sellers. Thus trading stock is made as efficient and liquid as possible. In conjunction with stock trading, it is possible to marry derivatives and use them to increase income, decrease risk or increase profits through judicious investments.

    Additionally, stock receives value as all of a company's financial reports are audited.

    How do Traders Make Money Trading Stocks?

  • The most important way to make money by trading stock is to trade in the direction of the dominant trend. Technical traders do this by plotting a moving average, anywhere between 50 and 200 days of the stock price. If the stock price is above its moving average, the stock is purchased for as long as it stays above its moving average. Stocks can be examined once a week and traded accordingly. "Shorting" stocks, or betting on their prices being lower in the future, is another variation on this theme.

    Others prefer trading through a rigorous study of the stock, the industry of the stock and the general economic trend. Such an approach is time-consuming and requires a fair degree of specialization.

    Investment monies are often better spent buying shares of mutual funds rather than shares of individual stocks, which is known as a fundamental analysis.

    Probably the most important but most overlooked trading issue is money management
    . Money management is the determination of how much of a stock is the optimum amount to purchase given the total amount of your portfolio, the risk of several stock losses consecutively and how much loss any individual stock should absorb before it is sold.