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Understanding the Basics of Stock Market Investing

The stock market is a realm of investing that many people assume they cannot understand. Almost everyone has heard sordid stories about the stock market, but only a small percentage of people really comprehend the stock market and its various components.

The Stock Market Defined

The stock market – sometimes referred to as the equity market – is a central part of the overall world economy. The market offers companies a network where they can receive large amounts of capital from investors.

Investors then receive a stake in the ownership of the company and can profit from its positive economic performance over time.

Ownership of Stocks

When you as an investor own stocks, you own a share of the company, and the rights associated with it. These rights include entitlement to some of the company’s assets and earnings. So the more shares of a stock you own, the greater stake you have in the company.

Those who hold stock in a company are referred to as the company’s shareholders. You may then be entitled to some voting rights in the company.

The Stock Exchange

The stock exchange is the grand “forum” where stocks are listed for trade. This is a place where buyers and sellers meet (virtually, that is, not usually in person) to coordinate trades. Simply put, the stock exchange is a marketplace, either physical or online, where investors “gather” to trade stocks.

The typical imagery that most people think when “the stock market” is mentioned is the traditional “exchange” with a physical trading floor filled with the chaos of thousands investors trading at once. However, other exchanges are formed through the Internet, which is increasingly becoming the norm for more simple stock purchases and sales.

How to Trade Stocks

A trade requires sellers to ask for a set price for the stock in their possession, and a buyer to bid a certain price for that same stock. The transaction takes place when the bid and asking prices match. Stocks are generally sold on a first come, first served basis.

Different Types of Exchanges

Each country manages its own stock market, including different stock markets even within the U.S. For example there is the NYSE, the NASDAQ, and AMEX, as well as many other types of exchanges.

Some of these exchanges trade only through a physical trading floor, while others use the technology available on the Internet for most of their transactions. Few of us “regular” people will ever buy or sell directly on an exchange floor.

Stock Market Trading Tips and Suggestions

You might be aware of the fact that great leaders are not born, but created on this very earth, and the same applies to investors and traders too. If you have self-confidence, the right motivation, perseverance, discipline and self confidence you can battle out all odds in the online share market. But those who lack basic confidence and persistence will be losers in the long run.

Great trade masters like Gerald Appel, Robert Prechter and even Elliot Waves have stressed the importance of discipline while trading in the stock market. A disciplined trading will reach rich benefits, and experience coupled with the right discipline will take you to great heights in the stock market sector.

Some ground rules to be followed while trading

The first all important quality that an individual should posses is acceptance of losses. People falter when there is a loss and they do not posses the ability to accept losses when the need arises. Although losses may hinder your sleep, learn to live with the fact that every cloud does have a silver lining and tomorrow things may change. Law of nature states that everything that goes up will come down and this applies to the stock market too. Be grounded and accept realities. Losses will turn into gains if you stay cool

Persistent is another word that should be accepted by all traders. Continue trading and be persistent even if the results are not too good. Bad times are followed by good times and vice versa. You have to trade cautiously and persistently in bad and good times to taste the sweet fruit of success.

Try and specialize in a particular market. You can choose stocks, equity shares, dividend payouts or any other area that interests you. Take one market at a time, become a specialist in that particular field and tone your skills. As time passes you will eventually become a master in all fields.

Do not overtrade and overburden yourself. Do not get addicted to trading. There are days when the market does not offer you anything and these days preserve your capital and try to avoid losses. Trading is not necessarily an everyday event. There are certain days where the market is very bearish and you do not have good options. Play safe on these days.

The above tips will help you stay grounded and keep your cool whiles trading in the stock market. You should hold your nerve, be disciplined and persistent to really stay ahead of everyone during trading sessions.

Stock Market Tips – 4 Signs It’s Time to Fire Your Financial Advisor

After the great crash of 2008 many people are asking if the time has come to fire their financial advisor.  “Is it the economy?”  “Shouldn’t my advisor have seen this coming?”  I’m going to give you 4 signs it’s time to fire your advisor. After reading these indicators you can decide for yourself if you should stick with your advisor or if it’s time to fire him and invest your own money.

1) Buy, Hold, and Pray

    Most financial advisors (and by most I mean like 99%) will tell you to put your money in mutual funds or similar investments (buy and hold).  These investment vehicles are great as long as the stock market goes up.  But what about the days when the stock market goes down?  Sometimes down is WAY down – just look at October 2008.  These are the days advisors  do not want to think about.  In fact, they choose to not think about those days.  But YOU DO.  It is your money after all.  And those are the days when you start to pray. “Please make it go up, please make it go up…”  I know, I’ve been there too.  But you do not have to be.  There are ways to invest when the market is moving lower and there are also ways to insure your portfolio against a downward loss.  That’s why if your advisor tells you to buy and hold, which causes you to pray, it’s probably time to FIRE HIM.

2) Buy, Don’t Pray, and Hold

    The “Buy, don’t pray, and hold” syndrome is the response most advisors have to the questions arising out of buy hold, and pray.  It goes something like this. 

You: “But Mr. Advisor, what if the market goes down?” 

And he says: “Oh don’t worry, over a 20 year period of time the market always goes up.”

    Now in theory that is suppose to put you at ease.  The problem is it doesn’t.  What your advisor is really saying is “just buy it, don’t worry about it, hold it forever, and in 20 years I think the market will be in one of it’s up swings”.   But what happens if the market isn’t in an upswing when you need your money?  And that’s the question you need your advisor to answer or you should FIRE HIM!

3) Expect Your Income To Go Down When You Retire

    This one always gets me.  You mean I’m suppose to work for 45 years, practically kill myself, and when I retire, when inflation is at the highest point in my life, when my dollars go the shortest, I should expect a drastic pay cut?  The answer is almost always — “yes”.  You need to make sure your advisor understands your goals.  And your goals should be to have as much or more income after your retire as you do before you retire, for the rest of your life, no matter how old you get!  If your advisor can’t make that happen it’s time to FIRE HIM!

4) 10-15% Annual Interest Is Really Good

    American’s have been conditioned to believe annual interest is the only way to measure interest.  In fact it’s not true.  That’s just what the financial institutes have told you.  Your home loans are measured in annual rates, credit cards have annual rates, and of course your measly bank savings account pays an annual rate of maybe a couple percentage points.  But every day and every month the big financial institutes are making daily, weekly, and monthly rates of return.  Why shouldn’t you?   In fact there are very special mutual funds for extremely rich people that focus on making monthly returns of 10-15%.  That’s the same amount you have to wait a year to make! If 10-15% annual return is your advisor’s idea of growth don’t take it.  FIRE HIM!