If you happen to watch a business show or business news on TV, you’d probably hear words or phrases like “stock market,” ‘trading,” “stocks” or “stock market trading.” What are these things and what is their significance? To answer your questions, here’s an overview on what stock market trading is.

Definition

In simple terms, stock market trading is the voluntary buying and selling or exchange of company stocks and their derivatives. Stocks refer to the capital raised by a corporation by means of issuing and sharing shares. These are traded in a stock market just as commodities like coffee, sugar, wheat and rice are traded in a commodity market. The physical or virtual (as trading may take place online) marketplace for trading shares on the other hand is called stock exchange.

Trading Process

Stock market trading takes place as one sells his stocks and as the other buys them. Usually buyers and sellers of stocks meet in stock exchanges and there they agree on the price of the stocks. The actual stock market trading happens on a trading floor—the one usually shown on TV when news on stock market trading are reported. Here investors raise their arms, throwing signals to each other. That auction-like picture of a stock market trading is the traditional way stocks are traded. It’s called “open outcry” since the traders cry out their bids.

Key Players in Stock Market Trading

Stock market trading participants vary from persons selling small individual stock investments to institutions trading collective investments, hedge funds, pension funds, mutual funds, etc. Big investors can be banks, insurance companies and other huge companies.

Importance of Stock Market Trading

Stock market trading is required to foster economic growth. It does this by helping companies raise capital or by helping them handle their financial problems. Stock market trading helps ensure that the capital is saved and is invested in most profitable business. Moreover, stock market facilitates the transfer of payments between traders.

Online Stock Market Trading

With the emergence and popularity of the Internet, almost everything can now be done conveniently online. You can go shopping online, join conferences online, read news online and communicate with business partners wherever you are. Even stock market trading can now be done virtually and this has made entering into a business much easier for anyone interested. Aside from conducting stock market trading over the Internet, you can also conveniently check status of your investments online.

The benefits of online stock market trading are just endless. Aside from the above mentioned, choosing where to invest is also much easier online. You can find virtually all kinds of stocks over the Internet; however, it would be best to invest in stocks with moving prices to ensure profitability in the long run.

It can be a good idea to use a stockbroker for an active management of your stocks or mutual fund portfolio. It can be vital if you want a steady growth. It may also be unnecessary as a passive management alternative often is available for long term investing.

However, many prefer to use and pay for the services of a broker because they feel more comfortable making decisions about their finances with the interactive guidance of a licensed advisor.

Using a stockbroker for financial guidance one must be aware of the fact that they do get paid on a commission. This can be a reason for them to trade more often as more trades make them more commission. The stockbroker is also paid on the result they can achieve.

Furthermore a conflict of interest arises when a stockbroker offers his/her services as a financial planner, because their revenue is generated as a direct result of your investment in the stock or mutual fund that they broker to you.

Your ROI, return on investment, may not be as great, and the advice they give you might not be in your best interest. However, some mutual funds and stocks can only be purchased through a broker. In such cases their services are required to purchase the financial instrument in question.

If you use the services of your bank there are some facts to consider. When you talk about the options you have to invest your money, they will certainly recommend the funds they control themselves.

In some countries you can for example invest in a portfolio with shares and have a guarantee to at least get your initial investment back in 2, 3 or 4 years. Sounds great to many and when they say yes to invest, the bank charge 110%. In that way the bank make a profit and secure the costs from start. Do the bank take a risk? No, they cover themselves with other types of investments that function as an insurance.

So now your portfolio starts off with a backlog of 10%. Often the investment will recover and take back most of the initial loss and the guarantee makes many invest as they feel comfortable and secure when they invest in this way.

Back to the question about what kind of investments the bank recommend. Do they recommend other banks portfolios? I don´t think so. If you go to a car dealer that sell Ford, do they recommend you to buy a Lexus? Certainly not.

A stockbroker working in a bank is not neutral, their job is to make you invest in the shares they make the biggest profit for them. If you make a profit too, that is fine but not their prime priority.

There are the authorities though to help the customer out. And there are rules and regulations about the way stockbrokers can and shall work. Depending on in which country you are investing the rules can vary. In some countries stockbrokers can have his own portfolio and the company where he works can also have an portfolio of shares.

This makes an eventual conflict arise whenever something special happens. There are numerous customers that suspect that they have been recommended shares in companies that will face problems and where the stockbroker wants to sell his own shares before the market drops. To prove these cases are almost impossible and to win them very rare. The number of transactions are also so big that it is almost impossible to trace and see a pattern. There might be just a few that went the wrong way.

Stockbrokers in general are behaving in a professional way and realise that their business will benefit most if the outcome for their customers are great. As a customer you are advised to check the results that a stockbroker have produced, trace their records. Do not look at the advertisements, the truth about the results are not there.

Before you start trading, you absolutely have to know what stocks you want to buy and hold for a while, which is called going long or holding a long stock position. You likewise have to know at what point holding that stock is no longer worthwhile. Similarly, you need to know at what price you want to enter or trade into a position and at what price you want to exit or trade out of a position. You may be surprised to find out that you can even profit by selling a stock without ever owning it, in a process called shorting.

You can even make money buying and selling options on stocks to simulate long or short stock positions. Buying an option known as call enables you to stimulate a long stock position, in much the same way that buying an option known as put enables you to simulate a short stock position. You make money on calls when the option related stock rises in price, and you make money on a put when the option related stock falls in price.

When placing orders for puts and calls, you are never guaranteed to make money, even when you are right about the direction a stock will take. The values of options are affected by how volatile stock prices are in relationship to the overall direction (up or down) in which they are headed.

Managing your trades so that you don’t lose a bunch of money is critical. Although one can’t guarantee that you will never lose money, experts can provide you with useful strategies for minimizing your losses and getting out before your stock portfolio takes a huge hit. The key is knowing when to hold them and when to fold them. You must think of your trading as a business and the stocks that you hold as its inventory.

Stock trading is the commonly used term to refer to the practice of selling or buying equities or stocks or shares in corporate companies in stock exchanges or bourse operating venues.

Through the practice, investors can place money or investment in several or particular company.

A gain or a loss in stock trading is accumulated on the difference between the sales price and the purchase price.

Stock trading is usually conducted during daytime. That is because it is assumed that during daytime, most and major businesses around the globe normally conduct businesses.

There are various stock trading venues. In one country, there must be at least one stock trading venue where equity trading is transacted for the entire country.

But there are countries that host more than one number of stock trading venues. The United States for example has more than one stock trading venue other than the very popular New York Stock Exchange.

In the United States, they also have the Nasdaq Stock Exchange where minor stocks or small-capilatlization companies are traded.

In Australia, there is the Australian Stock Exchange and other exchanges. It is because like the United States, Australia is a very large country that consists of several huge states.

Making investments

Investors have just to make connections to brokers in order to infuse capital or buy shares in stock trading activities. Brokers are accredited individuals or firms that are specifically tasked or commissioned to do such transactions.

Before brokers are allowed to be in between you and the companies where you may want to buy stocks from, they undergo intensive and comprehensive training.

Stock trading requires a lot of knowledge and meticulousness. Because there a lot of papers and documents that you have to process, the broker should be able to handle each with utmost care and certainty.

Before you are able to buy equities or stocks through stock trading activities, you should be able to provide a minimum capitalization.

The documents expected or required from you should also be turned over to your official stock broker so that no legal or civil issues will arise to disturb you in the future.

Buying stocks

Before buying stocks, you are expected to do your own homework. That means, you are expected to research and fin out about the background of the company where you want to invest your money in.

It is up to you where you will place your money into. Be sure that you do an intelligent decision because your returns or profit from the stock trading transaction will rely on this.

To buy stocks, you have to inform your broker partner about your intention and how much you are willing to buy for a particular stock or equity.

Be sure to be equipped with all the necessary information and data before hand. For instance, buying stocks from a company who is in the brink of bankruptcy will not be a sound investment decision.

By doing so, you take your money to risk, because your investment might go down or disappear together with the troubled company.

Just think of all the people who bought stocks last month and have watched their portfolio shrink. Aren't you glad you didn't choose to get into the market back then like they did? You're very fortunate right now if you're thinking of entering the stock market in a big way. Stocks are on sale. Just as I always like to wait for a discount or use a coupon when buying clothes or groceries, I also like to wait for a sale in the stock market before buying stocks.

How can you tell that the stock market is bottoming out right now? Well, this is the million dollar question and I'll admit I never really know for sure, nobody does. But, what I use to make my bold statement that we are at a low comes from the sentiment that I get a feeling for from the stock analysts that I follow. I watch many shows on T.V. like Kudlow and Company and Jim Cramer's Mad Money. I watch Nightly Business report on a daily basis to keep myself up to date on the psychology that investors possess. This is really the key in my opinion.

You can read up all you want on stats and try to say that interest rates and inflation are going to kill the market. You can say that the fed wants to ruin the economy and cause a major slowdown. But, that's all really unimportant if investors tune that out and decide they are bullish on stocks despite what they fed wants to try and do to the market. Statistics and economical data only go so far to determine if we have reached a bottom in the market. 90% of what you need to base your decision on is psychology and market sentiment. Watch as many analysts as you can and try to go with the flow. Never trust any one source, but follow as many as you can and you will know which way the market is moving. This way you have the rest of the investors at your back and moving with you when you want to enter the market.

If you are thinking of investing some money then you have thousands of options available in the forms of mutual funds.

However, how do you know what the right one or best one is for you to open?

Is investing online in mutual funds the right thing for you to do right now?

For you to even be able to begin to think about investing online then you must meet a few requirements regarding your computer’s capabilities first.

Your computer must be able to connect to the internet (obviously), your web browser must be at least 128-bit compatible such as Netscape 3.0 or Internet Explorer 3.0 or higher, and logically you must have at least a small amount of money - if not more - to start and actually invest. (Some online brokers require that you have as much as $1,000 or the equivalent in securities to open an account.)

If these things aren’t possible now or might stretch you a bit too thin in your personal life then mutual fund investing online may not be the best option right now.

Different accounts may be available for mutual fund investing online than are found in the bank you can walk into down the street and it is very worth your while to check in to this before making a final decision. With different companies comes different requirements, some require you to place cash up front and others may not require any cash to open the account.

You should (for "should" - read 'must') do an extensive detailed search to find an account that fits your needs as well as your bank account. Your best research tool is the World Wide Web and it is right at your finger tips 24 hours a day, seven days a week.

The subject of fees is always a tricky one to partake in and accounts online may be better for personal access as well as learning the subject, but the fees will still be there. Brokers online and brokers in big, fancy offices are going to charge fees whether you like it or not, but some may have “no fee” accounts that require certain balances or certain types of accounts.

Read the fine print, that is always where the important stuff is printed and you need to know everything about the place that is holding your money. No broker is truly going to “hide” fees and hang onto their trading licence for long, but it is up to you to read everything you sign, even the “terms of service” to understand exactly what you are getting yourself into.

Some websites will also help you by giving daily, monthly, and historical mutual fund data so you can make informed decisions. View everything available on the particular fund you are thinking of investing in, it is the best way to find the best account that is open to you or investors just like you.

On any given major stock exchange, from Wall Street to Bombay or from London to Hong Kong, billions of shares are traded each day that represent trillions of dollars exchanged back and forth. This buying and selling action represents volume, which is the result of the exchange of stock or commodity between both buyer and seller. Volume, then, is the prime mover in the price for a given stock or commodity in a given amount of time.

If there is more buying than selling for a ABC stock then what results is the rise in price for that stock. Likewise, if there is more selling then buying in ABC stock then share price is likely to fall in value. This makes the study of volume a valuable indicator to determine if a stock is either in demand or likely to increase in share value in the future.

Many aspiring stock traders practice a style of stock trading popularly referred to as “momentum investing” where one attempts to identify stocks that are fluctuating in a given price range for a length of time and are likely to have explosive moves to the upside or downside out of those ranges. The confirmation for those explosive moves are taking long positions at the upper end of that price range or short positions at the lower end of that price range on greater than average volume.

Let me offer an example of the importance in volume by stating that volume is literally the fuel for stock values. Like the space shuttle when it is launched into space the majority of fuel is spent to just get it into orbit. This explosive force of energy to propel the space shuttle into space or new heights requires an above average reserve of the fuel but then the space shuttle can then use only a small portion of the remaining fuel reserve to carry out the rest of its mission. Volume is to stocks what rocket fuel is to the space shuttle.

A good average is a 150% of its normal volume but I would also stress that its important to become familiar with a given stock’s volume pattern to gain true mastery. Baker Hughes, Inc. (BHI) typically will move in force with just a 20-25% higher volume spike while some of the lesser known small-cap stocks might require 150% or more.

The study of price and volume relationships also reveals a condition known as “climatic volume” which to a skilled trader can reveal a complete reversal in a given trend. After a stock has had strong advance or decline is where climatic volume can result (the operative phrase is “after” a strong advance or decline).

After an explosive move, usually the result of a volume spike, climatic volume results when traders come into the last stages of that advance of decline and price moves sharply at the last move of its trend. At this point, all the buying and/or selling has resulted and the move has exhausted itself and volume is then considered climatic when it exceeds two times the average daily volume over the last ten days. At these extreme volume levels price often goes almost parabolic or straight up in price without a noticeable pull back.

Master traders can spot these “Bump and Run The Top” or “Rising or Declining Wedge” patterns and use these climatic volume spikes to exit their positions and then use them to spot the trend reversal and get in at the beginning of a new trend transition.

The study of the relationship between price and volume can give both technical and systemic traders the confirmation that they need to get in on explosive moves and also serve as indicators as to when its time to get out and, possibly, even spot a new trend in transition to exploit profitably. Volume should be considered as the most important precursor to price movement at the disposal of investors or traders and can possibly lead to some huge gains to those who take the time to understand the relationship between price and volume.

An option pricing model is a magnificent "number crunching" trading tool. Without it, we are trading blind by the seat-of-our-pants. It is the difference between "knowing" and "guessing". It would be like a pilot flying without instruments.

It instantly computes implied volatilities, over/under evaluations, finds "best" trades based upon various scenarios, estimated outcomes, both "on-the-fly" and at expiration, and all that good stuff.

An option pricing model gives us an "edge" against those who trade without one and "levels the playing field" against those that do.

If we had to do the calculations ourselves (good luck with that), the market would close before we would get anything done.

But here's the thing: It's all THEORETICAL! It's not real. It's all guess work.

Forecasts are based on assumptions, which are nothing but educated guesses, and guesses are very "iffy" things.

There's nothing wrong with using an option pricing model in forecasting, per se, as long as we realize that we're never going to be right. We're always going to be wrong.

We strive for perfection in an imperfect world. Sorry to have to be the one to tell you.

All our sophisticated "toys" allow us to do is find out what kind of guessers we are.

It's all well and good to use an option pricing model, or any tool for that matter, to try to pierce through the "fog" of the future before we actually commit to a position.

However, once we commit it is no longer theoretical. It's REAL!

From that point forward, the only thing that matters is price. Theory is out the window.

Have your targets, stop-loss points, and follow-up actions figured out in advance and stick to them. A good option pricing model program can help us with that also.

Once a trade is established, manage the trade to its conclusion. Then move on to the next trade. It's as simple as that.

At the start of May we warned of a huge price move coming in natural gas and as predicted prices exploded to the upside last week and this is only the start of the move.

Natural Gas is a great long term investment, supply is simply out stripping demand and it’s an easy investment to understand and trade.

Let’s look at this fantastic trade in more detail and how you can trade it with unlimited profit potential and limited risk.

Seasonal demand – 14% Price rise last week!

The demand for natural gas is seasonal and as the hot weather kicks in demand soars due to increased demand for air conditioning.

Natural gas closed up 14% on the week. The contract rallied 7% on Thursday alone on expectations that the above-average temperatures forecast across much of the U.S. for the weekend which boosts consumption as consumers increase usage of air-conditioning systems. Weekly supply data was also bullish for prices.

Further good news for the bulls is we are approaching the height of the cooling season and the gas surplus should continue to decline as we enter a period of peak demand.

While this trade has already made great gains in a short period of time on the above seasonal, it’s the longer term picture that’s even more exciting.

The longer term picture

Natural Gas is colorless, shapeless, and, odorless. For many years, it was discarded as worthless but is now considered one of the most valuable fuels on earth and the supply and demand picture is compelling.

Long Term Demand

Natural gas is a source of fuel for the US which is domestically produced and is free of the geo political concerns that surround the supply of crude oil.

In fact, natural gas now provides 20% of all the energy used in the United States.

It is very important in private homes, where it supplies nearly half of all energy needs domestically. Natural gas is also popular in industry and used in an increasing number of power plants to generate electricity and factories are also using more gas as well.

We have strong short term demand and this is supported by strong long term fundamentals.

Long Term Supply

Demand for natural gas in North America is increasing at around 3% per year, while production is lagging at about 1%.

Older wells are running out and newer wells are not producing quickly enough. For the next few years at least supply will not be able to keep pace with demand and prices will continue to remain firm. The trend of demand outpacing supply will continue at least through to 2008, when liquefied natural gas is expected to be able to help meet rising demand, but until then far higher prices are expected.

Gas Is Cheap!

Natural gas has fallen over 50% from its 2005 peak and is now moving higher and has plenty of room on the upside.

This is a simple investment

Its not rocket science why gas prices are moving higher – its simple supply and demand! While many traders have focused on crude oil they should also be looking at gas as it’s rising on the back of strong crude prices as the US looks for alternative fuel sources. Be careful

Natural gas is an extremely volatile contract and traders need to proceed with caution. This is why we recommend options as a trading vehicle - Not only do you get unlimited gains you also have the comfort of limited risk.

It’s always difficult to predict when a market is going to take off and we saw prices decline after our last recommendation, but options give staying power in this situation to ride out dips to the downside.

If you want a simple trade that is making money fast, look no further than natural gas. Look for buying opportunities with options. Buy options in or at the money, with plenty of time value, to stay with this great long term bull market.

Much has been written about the virtues and dangers of active stock market trading, or “market timing.”

Most of the pundits and so called "experts" will tell you that stock market timing doesn't work, that it's dangerous, and that "buy and hold" is the best and only way to invest.

But this conventional wisdom is patently untrue. Here are the facts based on my research and extensive real time experience.

If you want to be a successful stock market timer, you need three key elements:

1. A system that actually works.

2. Discipline to follow the system.

3. Patience to stick with the system long enough to make it work for you.

And it’s tough to do all three.

Here’s why:

Most market timing systems don’t work. Or don’t work consistently enough to be valid. Some will work in trending markets but get slaughtered during flat times. Most systems don’t work in all markets.

Investors lack the discipline to follow a proven system. Once an investor finds a viable program, he or she needs the discipline to follow it. Sadly, some either can’t or won’t do that. When they let their own judgment or intuitions interfere, they don’t get the results they want or could have enjoyed by simply following the buy and sell signals they receive.

Investors lack the patience to stick with their system. Many investors are constantly in search of the Holy Grail, a program that never loses a trade. The fact is, no method will win every trade, and investors without patience will find themselves hopping from advisor to advisor with no rewards to show for their efforts.

However, there are a number of proven systems available that recognize these pitfalls and successfully time the market to massive profits year after year. Anything you hear or read to the contrary is simply not true. Wall Street has a vested interest in opposing stock market timing because it is a threat to their very existence.

Investors have two choices. They can pursue the conventional wisdom of buy and hold and hope for the best, or the modern investor can educate himself and find a timing system with which he is comfortable to protect and grow his wealth. There are a number of proven options available, but the absolute worst thing one can do is listen to the pundits who tell you that “stock market timing" doesn't work.