Introduction to Stock Market

To an investment beginner and to non-financial individuals, the term ‘stock market’ can be daunting and bring forth images of potential financial losses and dismal returns. It can be anxiety-provoking to watch one's investment rise and fall in an unstable market.

However, the allure of the stock market lies in the potential high returns that an individual can make with the right amount of research, knowledge and ability to take risks. The appeal is even more so with the fact that more millionaires were made during the time of the Great Depression than at any other time.

Over the last few decades, Unifunds noticed that the average person's interest in the stock market has grown exponentially. What was once only available for the rich is now a method of choice for growing wealth and earning income. Coupled with advances in trading technology, the interest and demand in the stock market has opened up the markets so that nowadays, nearly anyone can own stocks.

Despite its popularity, however, most people do not fully understand or comprehend the stock market and its trading strategies.

What is Stock Market Trading?

Stock market trading is the practice of investing money in the stock market. Specifically, it is defined as the buying and selling of shares, stocks or securities between a seller and a buyer, which requires the two parties to agree on a price. It should be known that shares, equity and stock all refer to the same thing, but Unifunds will use the term 'stock'.

Stocks used to refer to share certificates, which is a show of proof that a trader owned part of a company. As an individual acquires more stock, the ownership stake in the company becomes greater. Owning and trading stocks has become a much-valued tool for many people who want to build their wealth and gain financial freedom.

However, trading is now an online activity and as such stocks are used as a nominal term of ownership. A trader engaged in stock market trading might choose to trade stocks in any number of companies, as long as the companies are publicly listed on a stock exchange.

The place where stocks are traded is called an exchange. It is essentially the place where people gather to determine the price of the stock that consumers own.

There are currently two types of exchanges; the physical exchange and the virtual exchange. The London Stock Exchange and the New York Stock Exchange are two of the larger physical exchanges, while NASDAQ is a prime example of a well-known virtual stock exchange. The main difference between the two types of exchanges is that virtual stock exchanges have no central location and are dealt entirely online, composed of a network of computers.

Trading Hours of the Stock Market

One of the several advantages of having stock markets around the world is the fact that there is almost always a market open in some part of the world.

Most of the world’s stock markets open between 9:00 a.m. and 10:00 a.m. in the market's local time and close between 4:00 p.m. and 5:00 p.m. local time. The New York Stock Exchange, NASDAQ, TSX, and Shanghai Stock Exchange, however, all start operations at 9:30 a.m.

Some stock markets also take a break for lunch. Four major Asian markets take a break for lunch that lasts for 1 hour to 1.5 hours in the middle of the day. Those markets include the Tokyo Stock Exchange, Hong Kong Stock Exchange, Shanghai Stock Exchange, and Shenzhen Stock Exchange.

Different countries celebrate different days of the year, which is why some global stock markets are still open on public holidays in the United States.

The Importance of the Stock Market

The stock market is one of the main ways that businesses and other organisations raise money. It enables companies to be traded publicly and raise the necessary capital to expand their business. The liquid nature of the stock exchange allows those who invest to easily buy and sell their securities. This is a particularly attractive feature to investors.

Over time, the cost of shares has been studied, and it has been realised that the price are an important economic indicator and can indicate current social mood. Usually, the stock market is seen to be the most important indicator of a nation’s economic development and current strength. When share prices are rising, this is seen as increased investment in business and indicates a rising economy.

Who Can Trade in the Stock Market?

Anyone can trade stocks and participate in the stock market as long as they have the means. Participants in the stock market range from small individual stock investors to larger traders investors, who can be based anywhere in the world.

A potential buyer bids a specific price for a stock and a potential seller asks a specific price for the same stock. Buying or selling at the market means you will accept any ask price or bid price for the stock. When the bid and ask prices match, a sale takes place. It is also based on first-come-first-served if there are multiple bidders or askers at a given price.

A few decades ago, buyers and sellers were individual investors, such as wealthy businessmen. Over time, markets have become more institutionalised with buyers and sellers comprising largely of institutions, including banks, insurance companies, pension funds, investor groups and other various financial institutions.

For beginners starting on their own, Unifunds recommends using a broker to help simplify the process. Brokers can help individuals to choose blocks of stocks that offer fair returns, but are less risky than many other stocks. Using a broker and investing a little at a time, while being prepared to lose a certain amount, can help the new investor to rest easy with their investment choices.