When the company does well and makes a profit, the value of the stocks rise.
Stock owners can choose to sell their shares for a profit or hold on to
the stock for even more gain in the future. Sometimes companies will
decide to issue dividends. These dividends are part of the profits that
are distributed proportionately to the share holders.
The Stock Market
usually traded on stock exchanges.
Most stocks are bought and sold
through brokers who charge a commission or fee for this service.
American stock exchanges include the New York Stock Exchange (NYSE) and
the National Association of Securities Dealers Automated Quotation
are only listed on one exchange, although
large companies may be able to have listings on several exchanges.
been traditionally seen as long term investments. So called 'blue chip'
stocks - those having proven value over many years - may form the
backbone of an investment portfolio. Short term trading is a relatively
new phenomenon made possible with the advent of Internet trading. Day
traders are those who attempt to take advantage of large daily
fluctuations in the market by buying and selling many times in one
trading period. Day trading is relatively risky and any profits
realized are reduced by broker commissions charged on each transaction.
sometimes be bought on margin, meaning that the investor borrows money
to in order to buy the stocks. Margin rates are usually around 50% -
the investor can commonly borrow as much as half the value of the
The Foreign Exchange
Market (FOREX) is very
different from a stock
Whereas a stock exchange is still seen as a long term market,
is primarily a short term market. Most traders will enter and exit
deals within a 24 hour period – sometimes within a few
minutes. Many FOREX trades can be made in one day without building up a
large brokerage fee because FOREX trades are commission free. Brokers
earn their money by setting a spread – the difference between
asking and selling prices.
As of this
writing, the FOREX is quite simply the largest financial market in the
It handles transactions worth $1.5 trillion every day.
all the American stock exchanges combined handle daily transactions
worth about $100 billion. This huge volume that happens within the
FOREX means that
it is one of the most liquid
markets in the world. There is always a
buyer and seller for any type
of currency because the world economy
relies on the movement of goods from country to country. On the other
hand, the stock
market is less liquid because participants may choose to hold their
investments as long term investments or move on to other markets.
is the FOREX, Foreign Exchange, Market?
The FOREX is
not physically located in any one location. Trading markets are
world-wide and, because of differences in time-zones, trades can be
made 24 hours a day, 5 days a week.
Trading begins in Sydney, Australia
on Monday morning (Sunday afternoon New York time) and continues
non-stop until Friday afternoon New York time.
exchanges have more limited trading hours. While it is possible to
trade on exchanges world-wide, each of these stock exchanges is
operates for only 7 hours a day. There is no way for an investor to buy
or sell a certain stock that is only traded on a certain stock exchange
when that exchange is closed.
other advantages of FOREX trading?
It is more
predictable than stocks. The FOREX market
follows very well established trends; it allows high leverage
– typically 100:1 instead of 2:1 on the stock market; and it
doesn't require a large investment – mini accounts as small
as $250 can get you started in FOREX.