What Really Moves Stock Prices Up and Down?

Posted by admin in Stocks on Sep 21st, 2011 | 0 comments

When you start getting into the stock market, it can really seem like a thing of mystery. No one really explains to you why prices move up and down. Well, we should correct ourselves. It’s not that they don’t explain it — it’s just that everyone seems to have their own little conspiracy on why stock prices move up and down. It’s better to actually stop and really look into the best reason why stock prices move up and down. The starting answer that you get in classrooms is that the market is subject to supply and demand. If it were that simple, things would be a lot less complicated. So this guide is all about figuring out what really moves stock prices up and down.

It all starts with how the rise of the Internet has affected the way stocks are traded. Since the rise of the electronic exchange, stock prices can move around multiple times per second. This is all tracked by computer systems, which means that traders have to be a bit more focused on short term as well as long term price changes. There are always going to be swings in the market. It’s just a matter of taking action based on the things that you can control. If you try to react everything the price changes, then you’re definitely not going to keep up with the market.

If you really wanted a straightforward analogy, you could see the trading of stocks like the buying and selling of houses — is that not a trade? Currency in exchange for ownership of a property? Sounds like a trade to us. One thing that people don’t understand about the housing market is that nothing is ever fixed in stone. A seller might want $200,000 for the house, but the price is actually negotiable. This is why it’s called the asking price and not the fixed price. If you really think that you can get a better deal on the house, you will need to negotiate for it.

Stock sellers are the same way — they are offering shares for sell, at a certain asking price.

In both the stock market and the real estate market, buyers want to get what they’re trying to purchase at a price that’s as low as possible.

So in the real estate market, we might have a buyer that places a bid for $150,000. That’s the bid — notice that it’s lower than the “ask”.

That’s a principle that’s related to the stock market as well — there are times where there will be a “bid” of $150,000 for a stock, even though the offer is $200,000. That’s the “bid/ask” spread — the difference between what the seller wants to get and the buyer is willing to pay.

What this means for stock price changes is this: it’s the demand on the market coupled with the inventory available. If there are a lot of shares on the market, then each share isn’t worth as much. However, if there aren’t many shares and an inventor really wants a piece of the company, they’re going to have to offer a better price. This logic plays out multiple times per second and involves a lot of people — it’s no longer a single transaction between a buyer and a seller, but many transactions happening all at once across the globe. A global market gives everyone the theoretical chance to really get deep into the market and make money. Now, in reality, there will be limits — not everyone will be playing with the same starting capital.

This is the most straightforward explanation of stock price changes that we can give. This should give you the appropriate reference that you need when it’s time to look at charts and the like to determine what play to make next.

Individual Stocks or Mutual Funds – A Newbie’s Point of View

Posted by admin in Stocks on Sep 12th, 2011 | 0 comments

Everyone loves being able to become an investor. Indeed, it’s something that doesn’t discern age, race, gender, background, or anything else the regular world might look down on you for. Even if you’re just starting out in life, you can become an investor.

Yet there are other questions on your mind when it comes to the stock market, right? For example, you might already be reading the financial news outlets and hearing a wide variety of terms thrown out there. You might be hearing references to individual stocks and mutual funds and let’s not forget indexes. Which one should you gravitate towards and which ones should you pass on for now?

Well, if you really want our opinion, we would say that you should leave individual stocks alone for now and focus more on mutual funds. Generally speaking, newcomers to the world of investing are always tempting to hit individual stocks because they feel like it’s a sure thing or they’ve hard a good tip on the financial news wire. Folks, those stock tip recommendations are designed to drive ratings — until you really understand the concepts behind the market, you might want to actually hold off on this. You should instead look into what makes a metal fund perform properly and then invest your money there. For starters you don’t have to have a lot of money to get started in mutual funds and they are picked by super investors that have actually put in the research. This means that you’re actually buying into someone else’s expertise, which can be a lot better than relying on your own information when you get started. Just make sure that you are watching the mutual fund over time and not just trusting that everything will be okay.

The best thing aside from mutual funds is going to be indexes. You’ve probably seen a few references to indexes, and it’s a great way to diversify your portfolio without getting too complicated. You get the best of an industry without having to work hard, and that’s something that we definitely approve of.

We know that it’s going to take some time for you to really let all of this information soak in. That’s why we’ve come up with this series. It’s all about you as a new inventor and the bright world that awaits you. What else could you want?