Basics of the Stock Market - Understanding the Stock Market

stock-marketThere are some common terms frequently used in the stock market and it is important to gain knowledge and understand each of them before venturing into the stock market. Some of the terms include:

Equity market or capital market.

These two terms are used interchangeably and they refer to the core function of the stock market. They define the work of a stock market as helping a company acquire finances which will be used to expand a business or even start one.

Equity or shares.

Once company owners agree to seek funds from the stock market they divide their company resources into equity or shares which are sold to the public. The shares can also be called securities if they are secured.

A portion of the company equity is called a share in the United Kingdom while in the United States it is called a stock thus the name shareholder and stockholders for owners of shares and stock respectively.

Derivative markets.

They offer additional services other than those offered by the stock exchange. Derivatives are very high risk although they are profitable and they are not suitable for a private investor. Due to their complex nature no middle man is required for transactions.

The world of stock markets.

Stock markets vary in size but there are some of the biggest stock markets and they include the London stock exchange which is in Europe, the NASDAQ and NYSE (New York Stock Exchange) both in the U.S.A. Other markets include Japan's Tokyo Stock Exchange.

Each of these markets prides itself with an index. An index in terms of stock Market is a collection of companies which are quoted in exchange in that particular stock market. The companies quoted which are part of the largest stock markets are usually very large companies and mostly multinationals. They are often ranked in terms of capital in the market.

High frequency trading.

The use of computers and the internet has greatly influenced how the stock market operates. Unlike earlier people are now able to buy and sell stock online within minutes using the high frequency trading. Wealth advisors and brokers who deal with stock or shares are now able to give advice and communicate with their clients.

The process of high frequency trading is however very complex and complicated because of the use of algorithms and complex mathematical formulas during trading. There are people who are however experienced and knowledgeable in this area of high frequency trading.

Getting the right information.

The stock market is a versatile kind of market always changing and it is important to keep yourself updated at all times that is why I’d recommend additional reading. There are some reliable sources of information which give readers reliable information every day and some of them include; Market Watch and Yahoo Finance both of which are online sources. You can get information through the news on TV like CNN, Fox News and MSNBC.

Making money in the stock market.

Investors in the stock market gain profits by buying stock and selling them at a higher price than the buying price or holding the stock and receiving dividends which come at the end of the company's financial year. A loss is also likely to occur when the share prices drop more than the buying price. This is a highly versatile and risky investment opportunity but very profitable for those who succeed and get huge returns.

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