Stock Market and
Currency Trading
The term 'the stock
market' is a concept for
the mechanism that
enables the trading of
company stocks
(collective shares),
other securities, and
derivatives. Bonds are
still traditionally
traded in an informal,
over-the-counter market
known as the bond
market. Commodities are
traded in commodities
markets, and derivatives
are traded in a variety
of markets (but, like
bonds, mostly
'over-the-counter').
The size of the
worldwide 'bond market'
is estimated at $45
trillion. The size of
the 'stock market' is
estimated as about half
that. The world
derivatives market has
been estimated at about
$300 trillion. The
major U.S. Banks alone
are said to account for
about $100 trillion. It
must be noted though
that the derivatives
market, because it is
stated in terms of
notional outstanding
amounts, cannot be
directly compared to a
stock or fixed income
market, which refers to
actual value.
The stocks are listed
and traded on stock
exchanges which are
entities (a corporation
or mutual organization)
specialized in the
business of bringing
buyers and sellers of
stocks and securities
together. The stock
market in the United
States includes the
trading of all
securities listed on the
NYSE, the NASDAQ, the
Amex, as well as on the
many regional exchanges,
the OTCBB, and Pink
Sheets. European
examples of stock
exchanges include the
Paris Bourse (now part
of Euronext), the London
Stock Exchange and the
Deutsche Börse. The BSE
& NSE are Stock Markets
that have arisen from
India. These are also
working on a very large
scale.
One of the many things
people always want to
know about the stock
market is, "How do I
make money investing?"
There are many different
approaches; two basic
methods are classified
as either fundamental
analysis or technical
analysis. Fundamental
analysis refers to
analyzing companies by
their financial
statements found in SEC
Filings, business
trends, general economic
conditions, etc.
Technical analysis
studies price actions in
markets through the use
of charts and
quantitative techniques
to attempt to forecast
price trends regardless
of the company's
financial prospects. One
example of a technical
strategy is the Trend
following method, used
by John W. Henry and Ed
Seykota, which uses
price patterns, utilizes
strict money management
and is also rooted in
risk control and
diversification.
Additionally, many
choose to invest via the
index method. In this
method, one holds a
weighted or unweighted
portfolio consisting of
the entire stock market
or some segment of the
stock market (such as
the S&P 500 or Wilshire
5000). The principal aim
of this strategy is to
maximize
diversification,
minimize taxes from too
frequent trading, and
ride the general trend
of the stock market
(which, in the U.S., has
averaged nearly
10%/year, compounded
annually, since World
War II).
Finally, one may trade
based on inside
information, which is
known as insider
trading.
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