Stock Market Quick Guide

Stock trading tips for many trading professionals
Published by: Joel Osbome

What Are Exchange Traded Funds?

Exchange Traded Funds represent the shares of ownership in either fund, unit investment trusts, or depository receipts that hold the portfolios of common stocks that closely track the performance and the dividend yields of specific indexes, either broad market, sector or international.

Exchange Funds give the investors the opportunity to buy or sell an entire selection of stocks in a single security, as easily as buying or selling a share of stock. Exchange Funds offer a wide range of investment opportunities.

Exchange Traded Funds also called, as the ETFs can also be understood as open-ended collective investment schemes, traded as shares on most of the global stock exchanges. They try to replicate a stock market index for instance the S&P 500 or Hang Seng Index, a market sector for instance energy or technology, or a commodity as an example gold or petroleum.

Understanding the Exchange Traded Funds

While it may seem to be similar to an index mutual fund, Exchange Funds differ from mutual funds in many significant ways. Unlike Index mutual funds, Exchange Funds are priced and can be bought and sold all the way through the trading day. Furthermore, Exchange Funds can be sold short and bought on margin too.

Well! Now, single securities, known as Exchange Traded Funds (ETF), can track the performance of an increasing number of diverse index funds such as the NSE Nifty. Most Exchange Funds represent a portfolio of stocks that are very well designed to track one specific catalog.

Exchange Funds can be bought and sold exactly like a stock of an individual company during the entire trading day. In addition, they can be bought on margin, sold short or bought at specific limit prices. Exchange Funds can help investors build a diversified portfolio that is easy to track.

Exchange Funds trade like shares while providing the diversification of managed funds. Their presentation closely tracks the investment returns of the shares making up for the index.

Well! Exchange Traded Funds can be the cheap and the most fairly valued ones. Perhaps the most important, although subtle, benefit of an ETF is the stock-like features that are offered.

Since Exchange Funds trade on the exceptional market, investors can carry out the same types of trades that they can with a stock. For example, investors can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as they wish, as there is no rule of minimum investment requirement.

Many Exchange Funds have the capability for options to be written against them whereas Mutual funds do not offer such features.

As a working example, an investor in an open-ended fund can only purchase or sell at the end of the day at the mutual fund's closing price. This makes stop-loss orders much less useful for open-ended funds.

That is, if your broker even allows them. An Exchange Traded Funds is continually priced throughout the day and therefore is not subject to this disadvantage, allowing the user to react to undesirable or beneficial market condition on an intraday basis.

Another advantage is that Exchange Funds like the closed-ended funds are immune from some market timing problems that have plagued open-ended mutual funds. In these timing attacks, large investors trade in and out of an open-ended fund swiftly, exploiting minor differences in price in order to profit at the expense of the long-term unit holders.

Thus, with an Exchange Funds or say a closed-ended fund such an operation is not possible--the underlying assets of the fund are not affected by its trading on the magnificent market.

Exchange Traded Funds like any other kind of Investment Company will have a prospectus. All investors that purchase Creation Units get a prospectus.

Some Exchange Funds also deliver a prospectus to secondary market purchasers and the ones that do not deliver a prospectus are required to give investors a document known as a Product Description, which summarizes all the key information about the ETF and explains how to get a prospectus.

All Exchange Traded Funds will deliver a prospectus when asked for, as they do not use profiles. Exchange Funds are legally structured as open-end companies and must also have statements of additional information.

Open-end Exchange Traded Funds must be able to provide shareholders with annual and semi-annual reports before buying shares; you could carefully read all of Exchange Funds available information, including its prospectus.

The website of the American Stock Exchange provides more information about numerous styles of Exchange Traded Funds and how they work. You can easily Uncover detailed information about Exchange Funds resting on the website of The NASDAQ Stock market too.

The Stock Market Ruling the World

New Year came as a positive start for the Asian stock market with various corrective steps undertaken to ease the global economic meltdown. The Asian Stock Index flashed higher share price benchmarks for Tokyo, Sydney, Shanghai, Taipei, Malaysia, and India. In the Asian stock market, Indian shares flaunted a rise everyday except few fluctuations, the most dramatic being the day when Satyam mayhem was revealed. The optimistic approach as well as the rise in shares (for India) in the Asian Stock Index is an aftereffect of the Indian government's announcement of a fresh economic stimulus package, tax cuts, and increase of credits cum lowering of interests by the central bank. The Asian stock market is now performing strongly with the big stimulus packages announced by governments across nations. This has paved way for the Asian Stock Index to exhibit positive proceeds.

The Asian stock index revealed various sectors including realty, IT, oil & gas as the worst hit as a result of Satyam Computers cheating investors by inflating its proceeds. The Indian stock exchange saw a slump of 7.21 per cent with the Satyam mayhem. The top stock exchange losers were Satyam Computer Services, Reliance Communications, Jaiprakash Associates, Reliance Infrastructure, and DLF. With around 2124 BSE losers and 364 gainers, Hindustan Unilever, Grasim Industries, Infosys Technologies being among them, stock market India unfurled mixed results.

Disclosure of financial wrongdoings by Satyam Computers backed by overdose of negative publicity affected investors positively as well as adversely. With a number of coveted clients associated with it, Satyam is still an attractive buy. Few industry giants like Tesco, Caterpillar, Nestle and other companies are looking for alternate options for outsourcing rather than hanging up on India. Innovation is still the buzzword as many a company and operations are in full swing towards achieving the same despite the stock exchange news airing mixed index outcomes. Indian offshoring still continues unabated notwithstanding the Satyam fraud or stock exchange news. Tesco, the world's third biggest retailer, said it is going to accelerate offshoring to India.

Stock Market Timeline

The history of stock market is very rich and the efficient system that you use now for trading and investing in companies has evolved over centuries. All the policies and regulations have evolved through time as and when the policy makers felt the need for them. Wall Street was laid out as early as in 1685. The investment market was born after a century in 1792 when five securities were traded. These included three government bonds and two bank stocks.

The Buttonwood Agreement was the historic pact that around twenty four brokers and merchants signed agreeing to trade securities for commission. It is said that the New York Stock Exchange began as a result of this pact. Slowly the market started gaining prominence and securities such as bank stocks, insurance stocks and government bonds had begun to trade. As the market gained prominence, the requirement of rules and regulations for the proper conduct of trading and investing was felt. The New York Stock & Exchange Board was formed at wall street. In 1853, the board required the companies which were listed on the exchange to produce complete statements of shares outstanding and capital resources.

The first stock market crash happened in 1853 when the market lost up to 45% of value. The reason was the collapse of the Ohio Life Insurance & Trust Company. In 1866, the first transatlantic cable was laid which enabled instant communication between New York and London. In 1867, the first stock ticker was invented and this brought the current prices of the companies to all the investors. In 1872, the specialist was created. The specialist is a trader who trades only in one stock because of which he sits in one location on the trading floor. In 1895, it was suggested that companies start providing annual reports of their performance to their shareholders. Then in the subsequent year, there was another development in the form of the wall street journal publishing the Dow Jones Industrial average for the first time.

The Federal Reserve System was created in 1913 to bring structure to the control credit and to structure the banking system. The market price was quoted as a percentage of the par value. This was changed to prices quoted in dollars. In 1929 the largest crash in terms of the volume of shares takes place. This marked the beginning of the great depression. The Dow Jones reached the lowest value from its 1929 peak in 1932. It was quoting 89% down at that point of time. The Securities and Exchange Commission is established to provide full disclosure to investors and to prevent fraudulent activities in connection with the sale of securities. Women enter the trading floor in 1943 ending the reign of men. In 1966, several important developments took place. The Securities Investment Protection Corporation was set up to provide protection to the clients of brokerage firms that collapse. The New York futures exchange was formed in 1979. In 1996, real time tickers were launched in CNBC and CNN thus bringing the stock prices to investors and traders instantly.

As you can see, the rich history is incomparable to the history of any other stock market in the world. NYSE is the biggest stock exchange in the world and it will continue to remain so for some time to come.

Stock Market 101

The stock market or as it is sometimes known is a private or public arena for trading of a companies stock and/or its derivatives at an agreed upon price. These are considered the securities that are listed on the public stock exchange and the ones that are traded privately. Stock prices are set by a number of factors. The general consensus is that these prices are set by the long-term earnings potential of a company. The earnings prospects for the future are how investors decide what company to put an investment in.

The NYSE or New York Stock Exchange is actually a physical exchange. You can only trade stocks that are listed on this exchange. These are also the stocks that are traded on the floor.

The NASDAQ is a virtual exchange. In other words it’s listed on the computer network. The trade process here is quite similar to that of the NYSE. Everything is done over a computer network for making an investment.

A small cap is considered a company that has anywhere from 250 million to 1 billion dollars in capitalization. And the flip side of this is the large cap. A large cap is a company that holds more than 10 billon dollars in capitalization. The way we figure out market capitalization is by multiplying the number of a company's shares outstanding by its stock price per share.

Dividends are payments made to a shareholder by a corporation. This money comes from the company’s surplus profits. A T-Bond or treasury bond is a marketable US government debt security that has a fixed interest rate and the maturity rate is ten years. These bonds make interest payments semi-annually and this money is only taxed at the federal level.

Now that you have a little more insight into the stock market you should be able to make a great long term investment.