American Stock Exchange Primer - A beginner's guide

Saturday, December 11, 2010 | Labels: | 0 comments |

This is a general article about the NYSE and NASDAQ that should answer several questions about investing in the stock market. What kind of “traps” might come in the way of investors when they begin to trade in the U.S. stock market? Which opportunities should you should seize and which should you ignore?

New York Stock Exchange (NYSE) - the largest stock market in the world. Most companies listed on NYSE belong to the US economy, but companies from other countries are listed here as well. The exchange quotes 3,500 tickers, half of them are most of the time liquid.

NASDAQ (National Association of Securities Dealers Automated Quotation) is an electronic stock exchange. In the very beginning, it was the stock exchange for technology companies stocks only, but now a lot of companies from various sectors are listed on NASDAQ.

On both exchanges ECN (Electronic Communication Network) system plays an important role. This electronic system executes orders automatically. Thanks to ECNs all buy/sell orders are executed according to the FIFO principle (First In, First Out).

The NYSE and NASDAQ maintain programs of funds insurance and control over all traders and financial institutions. SEC (Securities and Exchange Commission) observes every transaction and stops abuses and manipulations immediately.

One of the disadvantages of the NYSE and NASDAQ is the information overflow. There are hundreds of websites providing market analysis, various strategies and blogs, as well as daily reports, free research and surveys from the leading investment companies and analyst firms.

Moments on U.S. stock exchanges that are dangerous for novices: better stay square.

A company’s earnings is a number that comes from the company’s quarterly earnings report. It seems that buying stocks before a company’s forecasted good Earnings and adding to this position after the confirmation of this data is a good idea, but at the same time, you should keep in mind that the most terrible statements of the company may also provoke incredible growth and vice versa.

Upgrades / Downgrades. Forecasts of the biggest investment companies about the particular stocks value in the future. Prices can sometimes gap and reach the amount of several dollars, and dates of these announces are not set clearly. Even if you have a paid subscription to Goldman Sachs advices, positions opened during such an event can bring heavy losses.

Dividends. First, it is not easy to catch the dates when companies pay dividends. Even if you catch the moment, sell a few stocks, and earn on a price down-move (after the dividends are paid, stocks become cheaper for the amount of the sum paid as a dividend), at the end of the month your broker will charge this sum from your account to pay the shareholders their dividends. And nobody can say for sure if the price will continue to move lower. Good dividends might attract the attention of other investors which may lead to a significant stock price growth.

Economic Calendar. Simple logic: lower oil prices will make the stocks of oil companies grow and, and the stocks of airlines fall. But there is no direct correlation between such things as potential earnings and a stock price. Sometimes the market can grow at falling home sales and rising unemployment.

IPO (Initial Public Offering). Initial public offering of securities: offering of the stocks of the company that haven’t been listed on the stock exchange before. First, don’t try to “short” stocks on IPO, stock prices can move up very quickly. You should know the company’s owners personally and have full information about the company’s products and perspectives, otherwise do not try to participate on IPO.

Here are a few common issues that you should know before making your first steps on the stock market.
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