To many of us, stock exchange trading is a mystery. Bulls, bears, indexes, charts- much of it makes little sense to most of us. As a result, what do we do? We keep away from investing in the stock markets. Net result is that we shut out a very lucrative, high return investment avenue. Discussed here are the basics of stock market trading.

What Is A Stock?

Ownership of companies is broken out into stocks or shares. The shares of public companies are traded on the stock markets in different lot sizes, ranging from a single share, to lots of ten or of 100 shares. As the owner of stocks of a particular company, you become a part owner of the company.

Stocks are of two types-common and preferred. Most of the stocks which are part of stock exchange trading are common stock. Usually, investment in stocks is a fairly liquid investment and you can sell your stock on the market as and when you wish to. This may not be true for some stocks, which are not frequently traded.

How Do You Know Whether Your Investment Is Making Money?

If you have ventured into stock exchange trading for the first time and built a portfolio of stocks, you would want to know how your investment is performing. While returns on a specific stock are largely determined by the way the company and the sector it belongs to is performing, the overall performance of the market is indicated by the market indexes. The most commonly quoted market index is the Dow Jones Industrial Index. Others frequently quoted to indicate performance of the markets are the NASDAQ and the S&P 500.

These indexes move continuously through the day, reflecting the mood of the investors on the market. If most investors are trying to sell on the market, then it is the Bears, which are in charge and the market index moves down. For you as an investor, this will translate into a decline in value of your stock.

On the other hand, if most investors are looking to buy in the course of the stock exchange trading through the day, the index will move up, indicating that it has been a Bull run that day, and the price of your stock is likely to have moved up.

Though, prices of each and every stock do not exactly track the movement in the index, generally prices of stocks move with the indexes.

What Determines Movement In Stock Markets?

It is difficult to give a specific answer to this question. Practically, all economic indicators impact the stock markets, apart from factors such as natural disasters and wars. Stock exchange trading is an investment avenue you should enter with caution; study the performance of the stock you wish to buy, analyze the return being generated by other companies in the same sector, and only then put your money into the stock markets.