Trading stocks. You hear that phrase all the time, although it really is wrong – you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels).
Trade = Buy or Sell
To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency.
Yet, they still must handle your order for 100 shares of Acme Kumquats with the same care and documentation as my order of 100,000 shares of MegaCorp.
You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.
Two Basic Methods
There are two basic ways exchanges execute a trade:
•On the exchange floor
•Electronically
There is a strong push to move more trading to the networks and off the trading floors, however this push is meeting with some resistance. Most markets, most notably the NASDAQ, trade stocks electronically. The futures’ markets trade in person on the floor of several exchanges, but that’s a different topic.
Exchange floor
Trading on the floor of the New York Stock Exchange (the NYSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.
Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.
1. You tell your broker to buy 100 shares of Acme Kumquats at market.
2. Your broker’s order department sends the order to their floor clerk on the exchange.
3. The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of Acme Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.
4. The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.
Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail.
Electronically
In this fast moving world, some are wondering how long a human-based system like the NYSE can continue to provide the level of service necessary. The NYSE handles a small percentage of its volume electronically, while the rival NASDAQ is completely electronic.
The electronic markets use vast computer networks to match buyers and sellers, rather than human brokers. While this system lacks the romantic and exciting images of the NYSE floor, it is efficient and fast. Many large institutional traders, such as pension funds, mutual funds, and so forth, prefer this method of trading.
For the individual investor, you frequently can get almost instant confirmations on your trades, if that is important to you. It also facilitates further control of online investing by putting you one step closer to the market.
You still need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order.
Conclusion
What does this all mean to you? If the system works, and it does most of the time, all of this will be hidden from you, however if something goes wrong it’s important to have an idea of what’s going on behind the scenes.
Trading Tips and Tricks
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7 Deadly Sins of Day Trading One of the most important attributes of a successful day trader is simply avoiding mistakes and minimizing losses. Put simply: you do not have to do everything ...
Study the Company You Plan to Invest Before You Jump In Understanding a companies balance sheet is very important. I personally like to see a companies "Total Current Assets" 3 times higher than its "Total Current ...
Pullback Entry Timing Concept:
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RSI 5/80 5 Day Chart Strategy I use many things I've learned from others, but this fits my goals. I trade with Zecco. And I use their streamer. I use the RSI 5/80 method, but with Zecco'...
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Penny Stock Tips Is trading penny stocks a good idea? This is a very good question and the answer for most traders is "no". Penny stocks are extremely high risk and many ...
Trading Gaps I didn't see this mentioned on the trading gaps article on the site here. A low risk, high probability trade usually awaits you when price first returns ...
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Trading Methods - Darvas Trading The Darvas Method is my favorite trading method. It involves the use of a unique setup that integrates a volume spike with a rising stock price into a ...
Professional Gap Down I like to trade Gapping stocks (pretty much exclusively) for the first hour of the day. If the gap is Professional, then I will see how it trades out of ...
RSI 5 Day Look Back for Entry and Exits I have had very positive results using the RSI (Relative Strength Indicator) 5 day look back for entry and exits in my swing trades. The usual default ...
Managing Your Risks Whether you are a businessman, stock trader, investor or gambler, understanding the risks being taken with your money and by your decisions is critical....
No Secret Methods Will Work There are so many trading offers out there that supposedly have “little-know” or “secret formulas” for profitably stock trades. After 18 years of trading ...
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Early history of commodity markets
Historically, dating from ancient Sumerian use of sheep or goats, other peoples using pigs, rare seashells, or other items as commodity money, people have sought ways to standardize and trade contracts in the delivery of such items, to render trade itself more smooth and predictable.[citation needed]
Commodity money and commodity markets in a crude early form are believed to have originated in Sumer where small baked clay tokens in the shape of sheep or goats were used in trade. Sealed in clay vessels with a certain number of such tokens, with that number written on the outside, they represented a promise to deliver that number. This made them a form of commodity money - more than an I.O.U. but less than a guarantee by a nation-state or bank. However, they were also known to contain promises of time and date of delivery - this made them like a modern futures contract. Regardless of the details, it was only possible to verify the number of tokens inside by shaking the vessel or by breaking it, at which point the number or terms written on the outside became subject to doubt. Eventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting.[citation needed]
Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Considering the many hazards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade routes, it was a major focus of these civilizations to keep markets open and trading in these scarce commodities. Reputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many peoples to manage and mediate trade and commerce.[citation needed]
[edit] Size of the market
The trading of commodities consists of direct physical trading and derivatives trading. Exchange traded commodities have seen an upturn in the volume of trading since the start of the decade. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market.
The global volume of commodities contracts traded on exchanges increased by a fifth in 2010, and a half since 2008, to around 2.5 billion million contracts. During the three years up to the end of 2010, global physical exports of commodities fell by 2%, while the outstanding value of OTC commodities derivatives declined by two-thirds as investors reduced risk following a five-fold increase in value outstanding in the previous three years. Trading on exchanges in China and India has gained in importance in recent years due to their emergence as significant commodities consumers and producers. China accounted for more than 60% of exchange-traded commodities in 2009, up on its 40% share in the previous year.
Commodity assets under management more than doubled between 2008 and 2010 to nearly $380bn. Inflows into the sector totalled over $60bn in 2010, the second highest year on record, down from the record $72bn allocated to commodities funds in the previous year. The bulk of funds went into precious metals and energy products. The growth in prices of many commodities in 2010 contributed to the increase in the value of commodities funds under management.[1]
[edit] Commodity as a new asset class for pension funds and SWFs
In order to further diversify their investments and mitigate the risks associated with inflationary debasement of currencies, an increasing number of pension funds and sovereign wealth funds are allocating more capital to real assets such as a commodities and commodity-related infrastructure.[2] Think-tanks such as the World Pensions Council (WPC) have argued that, unlike previous recessionary cycles, commodity prices could remain durably at relatively high levels as Gulf Arab, Latin American and Asian governments are less inclined to accommodate G7 nations on the supply front.[3]
[edit] Commodities trading
[edit] Spot trading
Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection.
[edit] Forward contracts
A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price. Early on these forward contracts were used as a way of getting products from producer to the consumer. These typically were only for food and agricultural products.
[edit] Futures contracts
A futures contract has the same general features as a forward contract but is standardized and transacted through a futures exchange. Although more complex today, early forward contracts for example, were used for rice in seventeenth century Japan. Modern forward, or futures agreements, began in Chicago in the 1840s, with the appearance of the railroads. Chicago, being centrally located, emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers.
In essence, a futures contract is a standardized forward contract in which the buyer and the seller accept the terms in regards to product, grade, quantity and location and are only free to negotiate the price.[4]
[edit] Hedging
Hedging, a common practice of farming cooperatives, insures against a poor harvest by purchasing futures contracts in the same commodity. If the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions.
[edit] Delivery and condition guarantees
In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two (or more) business days prior to the delivery day, so that the routing of the shipment can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point.
[edit] Standardization
U.S. soybean futures, for example, are of standard grade if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Indiana, Ohio and Michigan origin produced in the U.S.A. (Non-screened, stored in silo)," and of deliverable grade if they are "GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of Iowa, Illinois and Wisconsin origin produced in the U.S.A. (Non-screened, stored in silo)." Note the distinction between states, and the need to clearly mention their status as GMO (Genetically Modified Organism) which makes them unacceptable to most organic food buyers.
Similar specifications apply for cotton, orange juice, cocoa, sugar, wheat, corn, barley, pork bellies, milk, feedstuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded.
Standardization has also occurred technologically, as the use of the FIX Protocol by commodities exchanges has allowed trade messages to be sent, received and processed in the same format as stocks or equities. This process began in 2001 when the CME launched a FIX-compliant interface and has now been adopted by commodity exchanges around the world.[5]
[edit] Regulation of commodity markets
In the United States, the principal regulator of commodity and futures markets is the Commodity Futures Trading Commission but it is the National Futures Association that enforces rules and regulations put forth by the CFTC.
[edit] Oil
Building on the infrastructure and credit and settlement networks established for food and precious metals, many such markets have proliferated drastically in the late 20th century. Oil was the first form of energy so widely traded, and the fluctuations in the oil markets are of particular political interest.
Some commodity market speculation is directly related to the stability of certain states, e.g., during the Persian Gulf War, speculation on the survival of the regime of Saddam Hussein in Iraq. Similar political stability concerns have from time to time driven the price of oil.
The oil market is an exception. Most markets are not so tied to the politics of volatile regions - even natural gas tends to be more stable, as it is not traded across oceans by tanker as extensively.
[edit] Commodity markets and protectionism
Developing countries (democratic or not) have been moved to harden their currencies, accept International Monetary Fund rules, join the World Trade Organization (WTO), and submit to a broad regime of reforms that amount to a hedge against being isolated. China's entry into the WTO signalled the end of truly isolated nations entirely managing their own currency and affairs. The need for stable currency and predictable clearing and rules-based handling of trade disputes, has led to a global trade hegemony - many nations hedging on a global scale against each other's anticipated protectionism, were they to fail to join the WTO.
There are signs, however, that this regime is far from perfect. U.S. trade sanctions against Canadian softwood lumber (within NAFTA) and foreign steel (except for NAFTA partners Canada and Mexico) in 2002 signalled a shift in policy towards a tougher regime perhaps more driven by political concerns - jobs, industrial policy, even sustainable forestry and logging practices.
What is Stock Trading
Stock trading is not just buying and selling stocks at the stock market, there are so many other factors that need to be taken care of for successful stock trading. Anyone who invests in the stock market wishes to make profit from the investments. To ensure that you get significant return from your investment you have to pick up the right stocks at the right time. You have to learn the basics of the stock trading as well as acquire the skills to select the right stocks that will most likely appreciate in the future. There are so many other aspects related to stock trading that you need to be well aware of if you want to enter the stock market. Here we are discussing the different aspects of stock trading that will help you make stock investment easy and profitable.
If you have decided to trade in stocks the first thing that you need to decide is the stock market where you will trade. There are mainly two major stock exchanges in India – The Bombay Stock Exchange or BSE and the National Stock Exchange or NSE. While the BSE is the largest stock exchange in the country and it is the biggest in world in terms of number of listed companies, the NSE is the virtual exchange where you can only trade online. Both these exchanges have their benefits and limitations. They have different rules of trading and not all the stocks are traded at each of the stock exchange. So you have to select the exchange where you can trade, but of course you can trade differently at both the exchanges if you are trading online.
The next most important thing that you should have is a broker through whom you will undertake the trading. Every stock exchange has listed stock brokers through whom the trading is done by the investors. Based on the stock exchange you wish to trade you have to get a broker to do the trading. Moreover, you would also need to have a DP account to buy and sell shares. You can either opt for a conventional broker or you can choose to trade online. If you are trading online you can get the broking service from the banking or non banking organisations offering online trading facilities. They will provide you with the DP account, online trading account and act as your broker.
The next thing that you need to decide is the type of stocks and the nature of trading. It is essential as you need to have a strategy for stock market investment. You can not just abruptly buy some stocks and sell them. Though it may give you some profit at some point of time, to gain from stock market you need to have to make well thought investment strategically. Therefore it is important to decide the nature of the trading and type of investment depending on the fund and your objective of investing in the stock market.
If you are here for some long term investment and get good return you should investment in the large cap blue chip stocks for longer periods. Most of the growth stocks of the large cap segment give good return in the future. But if you are here for some instant income then you should go for daily trading and the short term and marginal trading will be perfect for you. If you are having little fund to invest in the stock market and ready to take the risk, you go for derivative trading or margin trading. In margin trading you can invest in more number of stocks even with a little fund but the chances of loosing or gaining money is higher. But the wise thing to do is divide the fund accordingly and have separate funds for long term investment, daily trading and for buying IPO that is also a great way to earn from the market.
All About Value Investing
Introduction:
Financial statements need to be properly analyzed and interpreted for measuring the performance and position of a firm. This is of immense help to lenders (short-term as well as long term), investors, security analysts, managers' etc.
Types of Financial Ratios:
Liquidity Ratio:
Liquidity is the ability of a firm to meet its short-term ( usually up to 1 year) obligations.
Current Ratio:
Current Ratio = Current Assets/Current Liabilities
Current Assets include cash, debtors, marketable securities, inventories, loans and advances, prepaid expenses.
Current liabilities include loans and advances (taken), creditors, accrued expenses and provisions.
This ratio measures the ability of the firm to meet its current liabilities. Usually, higher the current ratio, the greater the short term solvency of the firm. The break up of the current assets is very important to assess the liquidity of a firm. A firm with a large proportion of current assets in the form of cash and accounts receivable is more liquid than a firm with a high proportion of inventories even though two firms might have the same ratio.
Quick Ratio:
Quick Ratio = Quick Assets / Current Liabilities
Quick Assets imply Current assets less inventories.
This ratio is based on very highly liquid assets and inventories are deemed to be the least liquid of the current assets.
Leverage Ratio:
Financial leverage refers to the use debt finance. Debt finance is thought to be a cheaper source of finance and at the same time a riskier source. Leverage ratios help in assessing the risk arising from the use of debt finance.
Debt Equity Ratio:
Debt Equity Ratio = Debt / Equity
Debt - Long term as well as short term.
Equity - Share Capital plus Reserves and Surplus (Net Worth)
It is generally felt that lower the ratio, the greater the degree of protection enjoyed by the creditors. Generally, incase of capital-intensive industries a higher debt-equity ratio is observed.
Debt Assets Ratio:
Debt Assets Ratio = Debt / Assets
Debt includes Long term as well as short term debt and Assets include total of all assets.
Interest Coverage Ratio:
Interest coverage Ratio = EBIT / Interest charges
This ratio measures the margin of safety a firm enjoys with respects to its interest burden. The higher the ratio, the greater the margin of safety.
Turnover Ratios:
• Inventory Turnover Ratio:
Inventory Turnover Ratio = COGS / Inventory
Inventory implies balance of the stock of goods at the end of the year.
This ratio implies the efficiency of inventory management. The higher the ratio, the more efficient the inventory management.
• Average Collection Period:
Average collection Period = Receivables / Average Sales per day
• Receivables Turnover Ratio:
Receivables Turnover Ratio = Net Sales / Receivables
Fixed Assets Turnover Ratio:
Fixed Assets Turnover Ratio = Net Sales / Fixed Assets
This ratio used to measure the efficiency with which fixed assets are employed. A high ratio indicates an efficient use of fixed assets. Generally this ratio is high when the fixed assets are old and substantially depreciated.
Return on Investment:
Return on Investment = Earnings before Interest and taxes / Total assets
This measures the performance of the firm without the effect of interest and tax burden.
Return on Equity:
Return on Equity = Equity earnings / Net worth
Equity earnings = Profit after tax - preference dividend
Net worth = Share capital + Reserves & surplus
This Ratio measures the profitability of equity funds invested in the firm. This reflects the productivity of the ownership capital employed in the firm.
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As for "the criteria/methodology" for undervalued stock, the general rule is to discern the intrinsic value of the
Company and compare it to its enterprise value. For enterprise value, it's the sum of the market value of equity plus
the market value of the debt less surplus cash. You want to buy the stock when it's current market value is trading
at a deep discount to the intrinsic value. As for intrinsic value, you might need to perform a discount cash flow (DCF)
Analysis, a replacement value analysis (how much money it would take creates the current company today), etc.
As for the "things we need to look at to evaluate," you need to understand how the firm makes money, how it generates free cash flow, what it's return on invested capital is, etc. In order to understand the firm, you need to understand the industry, how the company fits in within the industry, where is the industry and company going in the future, etc.
To simplify the task of identifying undervalued stocks, there are several simplified criteria that can be used and are
readily available on the internet. These are PE ratio, PEG ratio, ROE, PS ratio, DE ratio, dividend, and historic data. Generally speaking stocks with lower PE ratios (price divided by earnings ratio) are more likely to be undervalued than those with higher PE ratios. The cut off is somewhere in the range to 12 to 16. That does not mean that a stock with a PE ratio of 20 is necessarily overvalued but it does mean that it might be. Also a stock with a PE ratio of 10 may not be undervalued. That is where the PEG ratio comes into play. This is the PE ratio divided by the expected growth rate. A PEG ratio of less than 1.00 is considered likely undervalued. A PEG ratio of more than 2.00 is most like overvalued. The problem with the PEG ratio is ascertaining the projected growth rate. You can find published PEG ratios on the internet for many companies, but unfortunately the projected growth rates upon which they are figured are normally concocted by overly optimistic security analysts, so taking them with a pound of salt is called for. DE ratio (debt to equity ratio) is also a helpful indicator.
The higher this ratio the more leveraged the company is and the higher the interest payments are. A high DE ratio many
times is correlated with a low PE ratio because the quality of the earnings is less and the ability of the company to
weather a downturn is less. The airlines were good examples of this. They were all highly leveraged and they all went
bankrupt as a result when they could not meet their interest payments.
ROE (return on equity) is an indicator of how profitable the company is. More profitable companies are generally valued more highly than less profitable companies. Historical comparisons can also be a significant indicator of the value of a company. All other things being equal if the company in the past sold at a PE ratio of 17 and it is now selling at a PE ratio of 13, it might be undervalued. It also might be the result of lower future expectations for the company such as we are seeing in the market today.
Need Of Stop loss In Stock Market
1. Don’t break your rules
You made them for tough situations, just like the one you are probably in right now.
2. Don’t try to get even
Trading in Indian stock market is never a game of catch – up .Every position must stand on its merits .Take your loss with composure and take the next trade with absolute discipline.
3. Don’t trade over your head
If your last name isn’t Buffett or jhujhunwala, don’t trade like them .Concentrate on playing the game well and don’t worry about making money.
4. Don’t seek the Holy Grail rely on experts
There is no secret trading formula, other than solid risk management .So stop looking for it.
5. Don’t forget your discipline
Learning the basics is easy. Most traders fail due to a lack of discipline, not a lack of knowledge .
6. Don’t chase the crowd
Listen to the beat of your own drummer .By the time crowd acts, you are probably too late…or it’s too early.
7. Don’t ignore the warning signs
Big losses rarely come without warning .Don’t waits for a life boat to abandon a sinking ship.
8. Don’t forget the plan
Remember the reasons you look the trade in the first place, and don’t get blinded by volatility.
9. Don’t confuse execution with opportunity
Overpriced software won’t help you trade like a pro .Pretty colors and flashing lights make you a faster trader, not a better one.
10. Don’t think its entertainment
Trading should be boring most of the time, just like the real job you have right now.
Who Is A Fundamental Analyst Of Stock and commodity Markets
Stock market analyst helps you manage your portfolio better and make maximum profit from your investments
The job of a Stock market analyst is to write reports on the financial status of the companies assigned to them and thereby help to make investment decisions based on the analysis. Stock market analysts work for banks, insurance companies, mutual and pension funds, securities firms, and other financial institutions and they help these companies and their clients to take investment decisions. Typically a firm assigns a company or a group of companies or a specific sector to one stock market analyst or a group of analysts for analysis. They keep close watch on the administrative, financial and other aspects of the companies assigned to them for analyzing their potential in the stock market.
Stock market analysts are professionally qualified to flawlessly carry out the analysis of the financial position of the company and their standing at the stock market. Moreover, they need to do thorough research on the financial matters as well as keep close watch on the happenings at the stock market as well as other aspects that directly or indirectly affect the financial health of the companies. In most cases the Stock market analysts partake in meetings with top level management of assigned companies as well as attend public calls to keep themselves up to date with the forthcoming business decisions of the companies. All these help the Stock market analyst to effective plan the investment predictions that eventually help their clients to make maximum profit from the stock market.
A stock market analyst plays an important role when it comes to share trading. Therefore investment banks, mutual funds and broking houses hire professional and experienced Stock market analysts to get the in depth picture of the stock market. The more flawless the analysis is the more is the chance of the client to gain from the stock the analysts are recommending to buy. Apart from the institutional buyers, individual investors can also benefit from the analysis performed by them. For that they need to get themselves attached with a broking house that has extensive analysis team with expert stock market analysts and provide daily recommendation for buying and selling stocks along with detailed analysis report of a given company.
Stock market have cycles that go up, peak, go down, and the bottom. When one cycle is finished, the next begins and this is only the problem that most investors and traders either fail to recognize the markets are cyclical or forget to expect the end of the current market phase, ready to earn more when the price of their stock is up and show regression, withdrawal, autism, repression to overcome their frustration when they face loss in the stock market.
It is therefore essential to understand the stock market cycles if you want to maximize investment or trading returns. Economic fundamentals of the companies have direct influence on the stock market prices:
If revenues and profits are on a steep upward trend with no indication of leveling off, you can expect to see the stock price rise as investors bid up this attractive company.
On the other hand, if the profit picture is flat or, worse, declining with no change in sight, look for investors to abandon the stock and the price to fall.
In order to have the much better understanding try to analyse the market economy i.e. the prices of most goods are determined by supply and demand. This is true of stock prices as well. If you want to know what causes stock prices to rise or fall, you have to understand the factors that shift the supply & demand curves in the stock market.
FACTORS EFFECTING DEMAND AND SUPPLY OF A COMPANY`S STOCKS:
- The current prices of the stock
- Current earnings/profits/dividends
- Expected future earning.
- Expected future stock price.
- The price of substitutes like bonds or other stocks
Smart investors spot the subtle changes before they become price-movers and take the appropriate action, as you develop you investing skills, you will learn strategies and techniques to help you establish a fair price for stocks and either get that price or find another stock to buy that meets you investing criteria.
Stock Market IPO
An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although an IPO offers many advantages, there are also significant disadvantages. Chief among these are the costs associated with the process, and the requirement to disclose certain information that could prove helpful to competitors, or create difficulties with vendors. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertaking an IPO do so with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide a valuable service, which includes help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale). Alernative methods, such as the dutch auction have also been explored. The most notable recent example of this method is the Google IPO. China has recently emerged as a major IPO market, with several of the largest IPO offerings taking place in that country.
Stock Market & Share Market Mutual funds
A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities.[1] While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered a type of mutual fund.
The term mutual fund is less widely used outside of the United States. For collective investment schemes outside of the United States, see articles on specific types of funds including open-ended investment companies, SICAVs, unitized insurance funds, unit trusts and Undertakings for Collective Investment in Transferable Securities.
In the United States, mutual funds must be registered with the Securities and Exchange Commission, overseen by a board of directors or board of trustees and managed by a registered investment advisor. They are not taxed on their income if they comply with certain requirements.
Mutual funds have both advantages and disadvantages compared to direct investing in individual securities. They have a long history in the United States. Today they play an important role in household finances.
There are 3 types of U.S. mutual funds: open-end, unit investment trust, and closed-end. The most common type, the open-end mutual fund, must be willing to buy back its shares from its investors at the end of every business day. Exchange-traded funds are open-end funds or unit investment trusts that trade on an exchange. Open-end funds are most common, but exchange-traded funds have been gaining in popularity.
Mutual funds are classified by their principal investments. The four largest categories of funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds may also be categorized as index or actively-managed.
Investors in a mutual fund pay the fund’s expenses. There is controversy about the level of these expenses. A single mutual fund may give investors a choice of different combinations of expenses by offering several different types of share classes.
What is Option Trading In Stock Market
Why Options Trading?
Successful Investors like Robert Kiyosaki and Robert G Allen have popularised options trading through the use of options strategies as part of an overall strategy to financial freedom. They preach that options trading is the investment of the rich. So, what makes options trading so powerful?
Options Trading Grants Unprecedented LEVERAGE!
Yes, options trading is LEVERAGE! Trading options allows you to potentially make over 10 times more profit on the same move in the underlying stock than if you bought the stock itself! The leverage power of options trading is perhaps the main reason why traders with small funds choose to trade options. Even though options was initially designed to be a hedging tool instead of a leverage tool, options trading is still a great way to profit while risking only very little money.
In fact, the power of leverage in options trading is unique in the sense that it is not a fixed amount of leverage but a variable amount of leverage that you can use by choosing different strike prices and/or expiration months! It is also this variability of leverage that makes options trading suitable for traders of any risk tolerance when used correctly. You can be as aggressive or as conservative as you wish in options trading by choosing options with the correct strike price and expiration.
The Leverage effect of option trading also allows investors to participate in the move of high priced stocks using only a small capital outlay. This is because stock options cost only a fraction of the price of its underlying stock. For instance, Apple (AAPL) is trading at $93.65 today while it's call options cost only $1.70. Investors can participate in the gains on 100 Apple shares through buying its call options for only $170 exactly rather then spend $9365 buying the stock itself. That's another benefit of option trading.
Options Trading For Leverage
Options Trading Grants Unprecedented PROTECTION!
Options trading not only grants you leverage, but it also grants you PROTECTION! When a stock moves AGAINST you, an options trader could potentially make a lesser loss than the stock trader. Why? Because your maximum loss is limited to the price you paid for the option which could be just 10% of the price of the stock, or lesser! Taking our Apple example from above, the stock trader's maximum risk is $9365 while the option trader's maximum risk is $170 for controlling the same number of Apple stocks! Indeed, options trading need not be risky!
You can also protect your stocks from dropping in value through options trading by buying the same number of put options as the number of shares that you own. In this case, those put options act as an insurance policy, protecting your shares from dropping in value. This is what we call a Protective Put.
Options Trading Grants Unprecedented FLEXIBILITY!
Options Trading allows you to profit from every possible move in the underlying asset! Up, Down or Stagnant, there is an option strategy that allows you to profit from that exact move. In Options trading, an options trader can easily participate in a downwards move on a stock through buying a put option without having to risk margin calls by going short the underlying stock or futures.
Yes, there are even times when stock trading is riskier than option trading! Read about How Stocks Can Be Riskier Than Options. This is also why I wrote this options trading tutorials site to teach the world about this wonderful trading instrument.
How To Start Options Trading?
The easiest way to start options trading is by opening an online options trading account with a broker which offers online options trading and then practise buying call options for stocks which you think will go up and buying put options for stocks that you think will go down. After you are completely familar with trading call options and put options, you can then move on to the more complex option strategies. Make sure you follow the essential Steps in Trading Options. There are currently (Dec 2010) seven exchanges in the United States that list standardized stock options for options trading -- The Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) and NYSE Arca in New York City, and the Chicago Board Options Exchange (CBOE) which are all open-outcry marketplaces, and the International Securities Exchange (ISE), Nasdaq Options Market (NASDAQOMX) and Boston Options Exchange (BOX) are electronic marketplaces. Anyone can trade options in any of these options trading exchanges through any options trading brokers.
What are stock exchanges in stock and commodity markets
A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.
The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).
There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.
Institutional Investors In Stock And Commodity Markets
Institutional investors are organizations which pool large sums of money and invest those sums in securities, real property and other investment assets. They can also include operating companies which decide to invest their profits to some degree in these types of assets.
Types of typical investors include banks, insurance companies, retirement or pension funds, hedge funds, investment advisors and mutual funds. Their role in the economy is to act as highly specialized investors on behalf of others. For instance, an ordinary person will have a pension from his employer. The employer gives that person's pension contributions to a fund. The fund will buy shares in a company, or some other financial product. Funds are useful because they will hold a broad portfolio of investments in many companies. This spreads risk, so if one company fails, it will be only a small part of the whole fund's investment.
Institutional investors will have a lot of influence in the management of corporations because they will be entitled to exercise the voting rights in a company. They can actively engage in corporate governance. Furthermore, because institutional investors have the freedom to buy and sell shares, they can play a large part in which companies stay solvent, and which go under. Influencing the conduct of listed companies, and providing them with capital are all part of the job of investment management.
