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The stock market provides a place where investors send their buy and sell orders. There are two types of stock markets where investors and companies meet:
- The Stock Exchange (Listed Market): Via an open auction system, buyers and sellers come together and match orders, with prices being determined by best bid and offer.
- The Over-the-Counter Market: Unlike stock exchanges, there is no physical meeting place; rather it is a network of interconnected dealers.
There are three types of these networks:
1) Through a computerised communications system, an example being NASDAQ.
2) An electronic bulletin board, with executions being handled manually
3) Pink Sheets, where stocks not qualified for listing on NASDAQ are quoted in daily publications these are called "Pink Sheets"; the bid/offer
As an NBK online investor, you will have available to you some of the major market indices, in real time and in a clear and easy to use format. To understand how these indices work, it is important to understand how they are calculated.
- The Dow Jones Industrial Average (DJIA) for example is comprised of 30 leading companies and is calculated using the average of the prices of these 30 stocks.
- The DJIA is considered an index that indicates the general state of the market and can be useful when used as a benchmark to judge the performance of your stock. (Please refer to www.dowjones.com for more information.)
- The NYSE composite: measures all common stock on the New York Stock Exchange (NYSE), and four-subgroup indexes- Industrial, Transportation, Utility and Finance. The value of each stock is measured by multiplying the price of the stock with the number of shares listed. For more information go to www.nyse.com.
- Standard and Poor's (S&P) 500, is compromised of the leading 500 companies listed in American markets; measured using a weighted aggregate methodology. The index reflects the total market value of the 500 companies, with each company's value being determined by multiplying the price per share with the number of shares outstanding. (Please refer to www.standardandpoors.com for more information.)
- The NASDAQ composite index, which includes many companies in the technology sector, and measures the value of over 5000 companies. Please refer to www.nasdaq.com for more information.
- Bull markets are when the market is rising, and the consensus is that it will continue to rise."
- Bear markets are the opposite, with prices dropping and the perception is that they will continue to fall.
- Stock is part ownership in a company.
- For every share of stock you own in a company you "own" a part of the assets of the company and part of the revenues those assets generate.
- As the company acquires more assets and the stream of cash it generates gets larger, the value of the business increases.
- This increase in the value of the business is what drives up the value of the stock in that business.
- The value of the stock may reduce if the opposite takes place and the company losses business and is unable to generate good revenues.
- Stocks are traded to raise money.
- By selling some ownership in the company in the form of stock they get money that they do not have to pay back.
- The companies do not have to pay back the money because it is not a loan, instead they have sold part of the company for the money.
- This capital can be used for expansion, upgrading equipment, marketing, or whatever the company needs.
- Stocks have a certain risk factor.
Basically, share prices change because of supply and demand. If more people want to buy a stock than sell it - the price moves up. Conversely, if more people want to sell a stock, there would be more supply (sellers) than demand (buyers) - the price would start to fall.
Understanding the different roles of the players will help you see more clearly your role as an investor. The following are a few of the major players.
- Broker: Person or firm that facilitates trades for customers; acting as an agent. The broker's role includes executing your order at the best possible price.
- Dealer: Person or firm that buys and sells for their personnel account.
- Market Makers: Dealers in the NASDAQ market, typically securities firms who are responsible for continually updating the quotes on the NASDAQ system, and stand ready to buy or sell at those prices.
- Specialists: Responsible for keeping markets orderly and continuous by matching buyers and sellers, and if needed selling and buying to maintain a regular market.
Buying or selling involves more than just placing an order. Different types of orders offer different types of conveniences and limitations.
- Market Orders: An immediate execution to buy or sell in the markets current best prise.
- Limit Orders: An order to be executed at a customer specified maximum and minimum price.
- Stop Order: An order that does not go into effect until the market price reaches specified price on order.
- All-or-None: An order to be executed all at one time- or not at all.
- Fill-or-Kill: Immediately execute a transaction or else cancel it.
- Day: An order is good only the day it is received, after which it is automatically cancelled.
- G.T.C (Good 'til Cancelled): If an order is not executed on the day it is given, it is carried over for 90 days until market reaches the price or order is cancelled.
Traditionally grouped into several categories, different stocks offer different benefits depending on your tolerance for risk and your time horizon.
- Blue Chips: Companies who are leaders in their respective fields, have established records of profitability and are usually considered solid ,secure investments.
- Large Caps: Companies that have a worth exceeding US $10 billion, have long established records of profitability and stability; also considered to be secure long-term investments.
- Medium Caps: Typically worth between US $1 and US $10 billion, higher level of risk although they can still have solid records.
- Small Caps: Worth less then US $1 billion and represent an even higher level of risk, these companies are also relatively young, and have yet to establish any kind of long term record of profitability or stability.
- Penny Stocks: Stocks of such companies usually trade below one dollar; they have very low visibility and are considered to be the riskiest type of investment.
It is suggested by financial experts that before you start trading, you need to first research a few stocks to see if they are sound companies that have the potential to earn money and grow over time.
- Perusing the annual report or looking at a company's earnings report.
- A good strategy is to use financial analysts to get information about a stock and then to check some of the numbers for yourself before investing.
- Make realistic goals about how much you may make on a stock over time.
- Do not take on more risk than you are comfortable with just to hope for above-average returns.
- Diversifying your stock portfolio, or investing in different stocks with different revenue streams is important.
The streamer is divided into several columns (whose order and quantity you can customise), with each column supplying a specific piece of information. These can include:
- Last: the stocks' last trading price
- % CHG: most recent percentage change in stock price
- Net: actual value change in stock price
- Bid: most recent bid price
- Ask: most recent ask price
- Open: price of stock at market opening
- Close: last market trading day closing price
- High: highest trading price of day
- Low: lowest trading price of day
- Volume: total number of shares traded during the day
Passively managed ETF's appeals to investors with large holdings in a single stock who want to diversify their investments without incurring extra cost. These funds allow investors to exchange their stocks for shares in a diversified portfolio through investing in ETF shares. ETF's are recommended for investors who are seeking to avoid the risks inherent in concentrated portfolios.
Example of ETF's include:
- Spyder (SPY): tracks the performance of the S&P 500 large cap
- QQQQ: tracks the performance of the NASDAQ 100
- Diamond (DIA): covers the Dow Jones Industrial Average of Fortune 500 companies on the New York Stock Exchange.
- Ishares Russell Midcap ETF: aims to track the performance of companies with middle-level capitalization through various indices.
- ishares S&P 600: cover similar small Cap stocks
- In addition ETF's measure the performance of stock markets throughout the world using the MSCI Index.
To capture this exciting new opportunity, invest in Exchange Traded Funds through NBK International Brokerage Service. The process is as easy as purchasing stocks in any company. For more details, please contact us at 803111.
Options give the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Options can be used to
- Offer protection from a decline in the market price of a long underlying stock or to profit from an increase in the market price of a stock.
- Buy a stock at a lower price, or create additional income against a long stock position.
- Profit from a move in the price of the underlying asset regardless of market direction.
Options can be used in a variety of ways to profit from a rise or fall in the underlying market. The most basic strategies employ "Put" and "Call" options as a low capital means of garnering a profit on market movement. Options can also be used as insurance policies in a wide variety of trading scenarios.
- Call options give the buyer the right, but not the obligation, to purchase an underlying asset. They are available in various strike prices depending on the current market price of the underlying instrument. Expiration dates can vary from one month out to more than a year. Depending on the mood of the market, you may choose to buy (go long) a call option.
- Put options give the buyer the right, but not the obligation, to sell an underlying asset at the strike price until market close on the 3rd Friday of the expiration month. Just like call options, put options come in various strike prices depending on the current market price of the underlying instrument with a variety of expiration dates. Expiration dates can vary from one month out to more than a year. However, unlike call options, you might consider going short on a put option if you expect market prices to fall.
Option strategies can be risky. But, if used in the right manner options can be a regular source of income or provide a helpful hedge to protect yourself from corrections and pullback's in a stock you already own, reducing your risk.
- Drastically increase your leverage in a stock. This is a powerful feature for investors who follow speculative strategies.
- A small investment in options gives you as much potential for profit as a much larger investment in the underlying asset itself.
- A useful tool in hedging against declines in existing positions.
- The ability to protect your stock holding by buying puts.
- The ability to take advantage of negative news in the market without shortening stocks as shortening stocks exposes the investor to unlimited potential loss.
- Ability to neutralize market positions by having the ability to use a zero beta exposure.
- Leverage your investment more than other investment tools.
- Using options to speculate requires a close watch on open positions and a higher tolerance for risk than investing in stocks.
- Options require more than just a basic knowledge of the stock market.
- There is the potential to lose a lot of money if various positions are taken such as the uncovered, or naked, "writing of options".
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