Penny Stock Guide Ch. 5-9

CHAPTER 5

STOCKMARKETS

A stock market is a public for trading of the company stock at an agreed price. It is considered the fast way to get the money from an individual and give it to the company that needs it.

The concept of stock trading comes from way back in 1600 , when the East India Company was launched, it needed money from the people for their voyages, without any guarantee of return  .hence they approached the investors to whom they gave shares in return of the cash.

The idea was that the risk would be shared and divided among the investors, no fixed returns would be paid to them but if company progressed and did well then the investors will be benefited. The idea worked and the investors made profits and by the end of 17th century many more were entering the ball game of trade.

In 1801 the LSE (LONDON STOCK EXCHANGE) was formulated, the systems were formulated and there was no looking back after that. LSE also runs AIM (Alternative investment Market) for the young companies as “starter market “

Today, along with Britain, LSE runs the biggest exchange with 1800 + companies, which is called the “main market “.

CHAPTER 6

STOCK EXCHANGES

WHY DO COMPANIES LIST ON THEM?

Stock Exchange is an organization or a corporation which helps in trading of stocks to investors and stock brokers. The main aim of listing the companies on stock exchange could be

Raising Capital for the businesses

Mobilizing Savings for further Investment and

Facilitating Companies Growth

NYSE

The biggest and the most prestigious stock exchange is the NYSE ( NEW YORK STOCK EXCHANGE) .NYSE came in existence way back in 1972 , when 24 New York stockbrokers and merchants  got together

Sign the Buttonwood Agreement.

NYSE is first exchange of its kind and trades in the open outcry system.  Each stock is traded by a specialist (who is the employee of NYSE) on a specific location on the trading floor. This specialist actually works as auctioneer between buyer and the seller in particular stock. This type of trading makes NYSE different from other exchanges which are totally dependent on electronic devices.

Today with changing times half of NYSE is also trading on electronic devices, and is come out of the Stone Age.

NASDAQ

The NASDAQ (NATIONAL ASSOCIATION of SECURITIES DEALERS AUTOMATED QUOTATION) is the second type of exchange and the largest electronic screen based trading market of United States of America. The exchange does not have central locations of specialist, neither do they floor trading. The entire trading is done through computers and telecommunications.

AMEX

The third largest exchange of America is the AMEX (AMERICAN STOCK EXCHANGE), which has been taken over by NASD (parent company of NASDAQ) in 1998.

OTHER EXCHANGES

There are many other stock exchanges around the world. Almost all countries have stock exchanges, with Americas stock exchange being undoubtedly be the largest.

List of other exchanges,

LONDON STOCK EXCHANGE

HONG KON GSTOCK EXCHANCE

MUMBAI STOCK EXCHANGE

JOHENSBURG SECURITIES EXCHANGE

And the list can go on…………

CHAPTER 7

WHAT ARE STOCK INDEXES

A stock market index is a method of measuring a section of stock market. Statistical indicator used in measurement and reporting changes in the market value of group of stocks. By measuring the performance of a one company based on the performance of other companies in the same type of business, which will help the investors to make best investment.

Major types of stock indices:-

There stock indices may classified in many ways.

GLOBAL market index includes all types of companies irrespective of where they are domiciled or traded. The 2 best examples of such index are MSCI WORLD and S&P GLOBAL 100.

NATION market index indicates the performance of a stock exchange of a nation and reflects the economy of the country. The examples of such index are the INDIAN SUNSEX and the JAPANESE NIKKEI 225

More specialized indices comprise of tracking the performance of the certain sector of the market, the example is MORGAN STANLEY BOITECH INDEX, it comprises of 36 American companies under biotechnology industry

Other indexes may track the companies from its size, or a certain type of management etc.

Weighting

The index can be also classified under the criteria as to how is it priced

PRICE WEIGHTED INDEX also known as equal dollar weighted index, each component stock contributes only to its price when determine the overall value. The size of the company or the volume in which its trading is not taken into considerations, hence evens a slight up or down in a single company highly influences the index

CAPITALIZED WEIGHTED INDEX also known as market value weighted index, whose components are weighted according to the total market value of their outstanding shares. The impact of the component’s price change is proportional to the issues overall market value.

CHAPTER 8

HOW DO I BUY AND SELL SHARES?

In ancient days buying and selling stocks/shares was the privilege of the rich , who with the help of certain share brokers use to buy and sell shares and among those few , the ones who had the inside information of the companies use to mint most money.

But the today’s internet age, the entire information is available to the common man, making him pretty much the part of this never ending market. As now most of the information is available on the internet, the stock brokers give their services with no frills attached , meaning you tell them which shares you want to buy or sell and they would do exactly the same , no advice given .

There are big stocks brokers like Barclays, Brennan etc who charge for the service their certain amount of commission for each deal, and also few brokers charge you yearly and quarterly fee just to keep your account open and do the dealing on your behalf.

Investors buy shares only for the purpose of income in forms of dividend, and then they should scrutinize properly and buy such shares that yield the most dividends.

Some investors are not interested in income but are more inclined towards capital growth, hence when the share price increases in anticipation that the company will yield more profits in future and which will affect the increase in the dividend payments… hence investors who are interested in capital growth, should invest in share that are expected to yield huge dividends in future.

CHAPTER 9

WHAT TYPE OF TRADER ARE YOU?

Each individual who is the stock market and is intending to make money has to identify himself from the various trader types he falls into and has to utilize that strategy.

The following are the types of traders,

POSITION TRADERS

Most investors fall in this category, as they buy stocks and hold them for months and years expecting to get more profits out of it. Institutional investors, mutual funds and investment banks are interested in such stocks which yield profits in long term. They concentrate more on the financial strength of the company and not in technicalities.

SWING TRADERS.

These are the traders who look for the fast movement in the market. Fast buying and selling , and in this short term of holding shares these types of traders make lots of wins and losses .They have the fast profit making mentality , they have high risk to reward ratio.

DAY TRADERS.

The stock market moves up and down every day and these types of traders make the most and capture the big portion of the move. He does not believe in keeping the stocks for more period of time like position and swing traders. He uses the stock market as source of income and not investment.

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