The Stock market is capitalism in its pure form
The Stock market is known to the public as the world of speculation and taking risks in the hope of obtaining huge profits, as seen in the Wallstreet Hollywood movie. It is the place where infamously the Great Depression of the 20-30’s of the XX century started, and till today it is a barometer of every modern economy.
More formally speaking, the stock market is the market where share, bonds, other equity instruments and their derivatives are traded. The trade is organised by the stock exchanges and brokers acting as their members. Stock markets for investors are the place where the money can be gained or lost, for issuer companies represent a source of funds needed for business growth.
Stock markets – why are they so popular?
For decades stock markets have been the symbol of capitalism, in times of financial turmoil standing in front of media attention. For many people the idea of acting on the financial markets is associated with trading on stock exchanges and fast and risky money.
On stock exchanges there are traded shares of companies known from everyday life, like telecom operators or car producers, thus some may consider that it is easier for an individual investor to understand the grasp of the market.
What moves the stock markets?
Everyday all around the world the media strive to explain the forces behind the stock prices movements. Typically, the best explanation comes after the actual facts have already taken place. From a fundamental point of view, the price movements are driven by market expectations related to dynamics of the economy growth and company earnings, inflation and interest rates.
When analysing the stock market situation, factors such as prices of oil and other energy commodities, stability of the political environment and potential threats such as terrorism and war, should be taken into consideration.
You can learn more about the analysis of the stock markets in our Fundamental analysis of stock markets section.
If you would like to learn how to analyse the graphical charts in order to make a trading decision, you can refer to Technical analysis section.
Most interesting facts
- The biggest stock exchanges in the world are currently the NYSE Euronext and NASDAQ OMX in the US and Tokyo.
- The daily total turnover of the global stock market oscillates at around 250 billion US dollars.
- Black Monday, dated 19 October 1987, is the largest one-day decline in terms of the percentage in the stock markets history. No fundamental explanation has been identified yet.
- Chine’s fast economic growth is reflected in the strong position of the Shanghai and Shenzhen Stock Exchanges in the world’s top 10.
- In August 2010, market turnover of the Shanghai Stock Exchange was two and half times higher than the Nyse Euronext in Europe, even though the NYSE has a higher market cap.
Indices Trading Example
Opening the Position
Opening price USD $ 2082.60
You decide to buy 1 contract at $ 2082.60 (1 contract=1$ per index point)
Closing the Position
One week later the SPX500 has risen to $2092.60, you decide to take your profit by closing your buying position
Market movement= 2092.60 – 2082.60 = 10
Gross profit on Trade = 2092.60*1-2082.60*1= USD$ 10 ($1 per Index point)