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‘Stock Market’ as it is used in general conversation has taken on the meaning of both the business being conducted in investment markets and the physical place where most of the transactions are taking place. We can speak in broad terms about the Market being up or down and mean the general performance of many individual stock exchanges in the country, such as NYSE or Nasdaq in the United States. To use more specific language for where stocks are actually traded, the term ‘Stock Exchange’ is used.
Each company will generally trade its stock on one Exchange, unless the company is very large and, for example, trade in multiple countries. Each country may have several Exchanges where different companies are listed. As long as operating hours are obeyed, people around the world can trade in any country’s Exchanges. Trading times are similar to, but slightly shorter than, a regular business day. Exchanges in New York are open from 9:30am to 4:00pm Eastern Time and other exchanges have similar trading hours in their local time zones. Japan, India, England, Germany, Switzerland, China, and the United States host the major world Stock Exchanges. Notable among these big players are the Tokyo Stock Exchange, Shanghai Stock Exchange, the Nasdaq, the NYSE, the AMEX, the London Stock Exchange, Frankfurt Stock Exchange, and the Bombay Stock Exchange.
Stock markets can be used as a barometer for economic health of a country. When production is high, unemployment is low, and inflation is low the market gains total value. This rise is a bull market. When stock prices start falling in a bear market, the economy is generally on a downturn. High inflation and high unemployment are usually seen at this time.
Changes in stock prices aren’t entirely dictated by the health of the economy. A large part has to do with investor psychology and how it relates to changes in supply and demand. When one stock becomes a hot commodity, other investors try to join in and the price is driven ever higher. Conversely, if a number of people start to sell a stock and the price drops, others will try to sell before it drops more. This push to sell just drives down the price faster though. These psychologically driven market changes tend to be short lived and balance out in the long run. It is the economic health over time that is reflected in the long-term trends of the market.
Stocks are not the only place to invest though. Other major investment markets include Foreign Currency Exchange, Futures, and Options markets. Globally, the largest single segment of the investment sector is in Foreign Currency Exchange. Currency traders move very large sums of money between different currencies very quickly to take advantage of small fluctuations in the exchange rate. These trades usually are only owned for a day and are only profitable if the trader is very attentive to factors influencing the day’s rates.
Futures Markets are designed to give buyers and sellers in volatile markets fixed prices at set times. The price for a quantity of goods is fixed in the contract, as is the time of the delivery. When the market then fluctuates, the locked in price for the contracted good means that the value of the contract itself changes. Traders in Futures are less interested in the price obtained in the contract for the goods, but are interested in the value of having that price fixed against the changing actual price of the goods.
The Options Market also deals with contracts for future prices. The difference from the Futures market is that Options allow the owner to buy at a specified price before the date given, but does not force the owner to buy that item. The Options themselves may be bought and sold, or used on a higher-risk investment as insurance. These investment tools have a high risk of loss. It requires a specialized knowledge of the option itself as well as the market it is trading in to make a profit. Most traders also benefit from having experience in a market. Stocks require less specialized knowledge to invest in with relative safety because the market as a whole changes more gradually than options on the market change. Stock traders can invest in certain ways intended to change the value of holdings very quickly, but the majority of investors put their long-term investments into stocks.
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