Trading in Stocks in Forex
Among all the financial instruments that are available for investment, stocks or equities are by far the most familiar and popular financial assets among investors. When an investor buys a company’s stocks, the amount he buys represents his stake in the company. This stake entitles him to a certain percentage of dividends that the company pays out to its shareholders. Certain classes of stocks (preferred stocks) also entitle the stakeholder to vote at the company’s annual general meeting and to decide who sits on the board of directors.
The Stock Exchange
Stocks are traded through regulated stock exchanges like the New York Stock Exchange (NYSE). Some exchanges, however, are more of an electronic network than a physical location.
The main task of a stock exchange is to facilitate the buying and selling process of stocks between investors and sellers. The stock market is divided into the primary market and the secondary market. The primary market deals with the issuance of securities through stock launches called Initial Public Offers (IPOs). The secondary market deals with the trading of previously issued stocks.
Some of the major stock exchanges located around the world include:
- Tokyo Stock Exchange
- TMX Group
- Taiwan Stock Exchange
- SIX Swiss Exchange
- Singapore Exchange
- Shenzhen Stock
- Shanghai Stock
- NYSE Euronext
- National Stock Exchange of
- NASDAQ OMX Group
- Moscow Exchange
- London Stock Exchange
- Korea
- JSE Limited
- Hong Kong Stock Exchange
- Deutsche Börse
- Bombay Stock
- BME Spanish Exchanges
- BM&F Bovespa
- Australian Securities Exchange
In addition to the major exchanges listed above, there is also the “Over-The-Counter Bulletin Board” (OTCBB), where stocks of smaller public companies are traded. As a result of the fact that the OTCBB lacks regulation, investing in stocks listed there is considered risky.
Stock Prices
Although stock prices are determined by the laws of supply and demand, it is difficult to pinpoint exactly what makes an investor prefer one stock over another. The principal theory which seeks to explain investors’ behavior relies on the “perceived value” of a company’s stocks. Hence, the earning potential as well as any news that can impact a company will affect the demand for a stock. Nevertheless, sometimes the market just does not make any sense. A good example is the dot com bubble, which burst during the beginning of the new millennium. Internet-based companies’ stocks were then being snapped up even though they never made a single cent in profit.
Investing In Stocks
To invest in the stock market, investors will need to engage the services of a broker. Stockbrokers earn a commission every time one of their investors buys or sells a stock. Some brokers are considered “Full Service Brokers” who also offer expert advice and account management services. At the other end of the spectrum are “Discount Brokers” who offer nothing more than “Buy & Sell” services.
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