Stock Trading

Everyone talks about the stock markets; The FTSE100 in Great Britain is down, the NSDAQ in the US is up, the Nikkei in Japan has crashed. News about share price indices such as these are quoted daily in nearly every news bulletin broadcast around the world; but what does it actually mean and can anyone trade in stocks and shares?

First of all, when people talk about owning stocks and shares, they are actually talking about the same thing; they own share certificates in a company or companies. The difference between the two is purely a semantic one and both refer to the same thing, for the purpose of this article.

In simple terms, shares represent the part ownership of a company. When a company wishes to raise funds, they sell shares in the company to investors and, in return for their funding, the investors gain voting rights at shareholders meetings and a share of the company’s profits which are paid in dividends.

The value of a company’s shares may go up or down depending on the performance of that company. If they make profits and the company’s future prospects look good, the value of shares in that company will rise and this potential movement in value of shares means that shareholders can make money by buying and selling stock, or trading, in those stocks on international stock markets.

A ‘stock market’ is a national or international market place for buyers and sellers to trade in the stocks of those companies that are listed on that market. This does not mean a physical trading floor, as most of us might think of it, as nearly all trading is now carried out via computers.

The stock market indices mentioned earlier are aggregated indicators of the overall performance of the price shares on that particular market and, as they represent a’ basket’ of companies they are also seen as good indicator of state of the economies of countries, regions or even the entire world as well.

The size of the global stock market is huge and is estimated at a value in excess of $40 trillion and investors include; private individuals, banks, insurance companies, hedge funds, mutual funds and corporations.

Anyone can try their hand at stock trading but should be aware that it can be a risky business. As all the advertisements for financial products say; shares can go down in value as well as up and many investors have lost fortunes trading in stocks. However, with proper planning and research and prudent risk taking, a stock trader can make a good living and avoid the traps.

To start trading in stocks an investor will need to open a brokerage account at a well-respected stock brokers and it is this broker, for a commission, who will conduct the transactions on the investor’s behalf. Anyone can trade in stocks but investors should always do their homework first.