Trade Stocks

If you have decided to make your first steps in the world of stock trading, there is a lot of useful information to consider, and which is even better, it’s usually free to access. It is best to start with the basic rules of stock trade, as well as advice on how to avoid possible financial risks.

What are stocks?

Let us suppose that you are the manager of a fairly successful company that manufactures large excavators and other earth digging machinery. Now, you may agree that it is quite inconvenient to haul one of your excavators with you whenever you are traveling around the world and meeting your international business partners. Instead, people have invented stocks as a form of legal document that indicate the financial strength of a particular company. The value of stock stands for the net assets of that company. By the same token, if one decides to invest in your products and take advantage of their stable prices on the market, he does not need to buy a real excavator from you. Instead, he will buy a certain amount of stocks that guarantee the value of your output.

“Here I give you an excavator, give me a thousand water pumps!”

You may agree that today, the sentence above sounds absurdly naïve. To avoid the numerous disadvantages of the “in kind” trade, financially-whizzed minds have developed stock exchanges – special market places for companies to offer their stocks to potential investors. Bear in mind that the prices of stocks at a particular stock exchange are never fixed. Rather, they are subject to constant fluctuations related to changes on other stock exchanges around the world. On their part, stock exchanges fall into two main categories – real and virtual. The real stock exchanges are places that function much like a local market place and oftentimes, they are just as noisy. Instead of market place, however, this venue of stock buyers and sellers is called trading floor. Virtual stock exchanges are certainly quieter and calmer places to trade in stocks, but the transactions are equally intense. Typically, a virtual stock exchange is set up by a number of interconnected powerful computers and all transactions are electronic.

Two types of stock markets

Speaking of stock markets, it is a good idea to differentiate between the primary market, on which securities are created in the form of an initial public offering (IPO), and the secondary market, where investors are trading previously-issued securities. Here, the issuers themselves are not involved. In other words, the trading of a company’s stocks does not necessarily involve the company itself.

NYSE and NASDAQ

No doubt, the New York Stock Exchange (NYSE) is the most popular real stock exchange around the world. It was founded in 1792 with an agreement between some twenty-four stockbrokers and merchants, while nowadays giants like Coca Cola, McDonald’s and General Electric trade their stocks on the Big Board, as the stock exchange is often referred to.

NASDAQ is another stock exchange for equity securities, boosting one of the largest trading volumes in the world. The exchange was created in 1971 and provides price quotations on over 5000 stocks. Its computerized system offers real time, pre-market, and after hours quotes. The pre-market session starts at 7am while the post-market session at NASDAQ ends at 8pm. The stocks of IT giants such as Microsoft, Intel, Cisco and Dell are listed at NASDAQ.

Virtual stock markets do not have a central location or stock brokers to run around yelling and waving their hands. Instead, trading is carried out through a powerful computer and network of dealers who communicate online.