Things to know about stock markets
“Stock market” is a term used to describe the physical location where
the buying and selling of stocks take place as well as the overall
activity of the market within a particular country. The correct term to
be used in pertaining to the physical location for trading stocks is
“stock exchange.” Every country may have a couple of different stock
exchanges that are usually traded on only one exchange although a lot of
large corporations may be listed in several different locations.
The ubiquity of stock exchanges makes it possible to buy or sell
stocks throughout the world. The only restriction to stock exchanges is
time. Different exchanges may have differing opening hours based on
their local times. The major stock exchanges in the world are the Tokyo
Stock Exchange of Japan, the Bombay Stock Exchange of India, the London
Stock Exchange of United Kingdom, the Frankfurt Stock Exchange of
Germany, the SWX Swiss Exchange of Switzerland, the Shanghai Stock
Exchange of China, and the New York Stock Exchange, the NASDAQ, and the
AMEX of United States.
The economic health of a country is closely followed by stock
markets. Bull markets occur when a particular nation experiences high
economic production, low unemployment level, and low inflation rates.
Bear markets, on the other hand, follow the down trends in the economy.
Such indicators of economic downfall are increased unemployment and
inflation. These causes the fall of stock prices.
Supply and demand, which are determined to a large extend by investor
psychology, also influence the fluctuations in the prices of stocks. A
rise in stocks may cause a lot of investors to jump into the bandwagon
which later drives the price even faster. A falling price, on the other
hand, can drive the same effect called short term fluctuations. After
such runs, stock prices tend to normalize.
Aside from the stock exchange, other popular markets that offer many
investment opportunities include the Foreign Exchange Market (FOREX),
the Futures Market, and the Options Market. The FOREX is the biggest
investment market in the world, in terms of trades and values. The
traders in a FOREX buy one currency against another and profit from
small changes in the value. Most FOREX trades are entered and exited in a
24-hour span so traders have to keep a close watch on the market in
order to make profitable trades.
The futures market is a market of contracts where goods are bought
and sold at specified prices and times. The desire of most buyers and
sellers to lock in the prices of their goods for a future delivery
despite the market conditions resulted to the existence of the futures
market. The market conditions can make the actual futures contract to
fluctuate considerably in value. Most of the investors in the futures
market are mainly interested in the profit that can be realized in
trading contracts and not in the actual goods.
Another alternative market is the options market. The options market
is quite similar to the futures market because it also features a
contract that gives the right, and not the obligation, to trade a stock
at a certain price before the specified date. These can be traded on
their own or purchased as an insurance against price fluctuations within
a specified time frame.
The FOREX, the futures market, and the options market are all quite
risky markets that require a considerable knowledge and experience to
prevent any substantial loss. These also require a very close attention
to the different market movements. As compared to the three, stocks are
considered to be less risky because the movements of the market are
usually gradual and although short term investment strategies are
possible, a lot of people view stocks as long term investments.
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