Finance Wanted.

By Mark Crisp

First of all, a "stock" refers to a share of ownership in a company. Companies sell stock to raise capital. Companies that trade on stock markets are public companies that have issued stock to the general public. Each person who owns stock has a number of shares in the given company, which give them corresponding ownership rights. For example, they may be entitled to voting on major company decisions and to a share of dividends (profits distributed to stockholders after the company's interest expenses and taxes are paid). Having said that, there are different kinds of shares that have different types of rights attached. Most stock traded on the stock market is comprised of "ordinary shares" which gives you voting rights and the entitlement to dividends.

What is a stock market? And what is a stock exchange? These terms are often used interchangeably. Well, "stock market" is typically used to describe the worldwide market involved in buying and selling stock, while a given stock exchange is one of the physical locations where stock trades are transacted. Until not too long ago, stock exchanges were teaming with people whose jobs were to physically trade stocks with one another on behalf of buyers and sellers. These days, most exchanges facilitate this electronically. Stock exchanges also vary in size, ranging from local stock exchanges like the Bendigo Stock Exchange in regional Australia to the massive New York Stock Exchange in New York City!

Unless you have the requisite licence, you can't directly buy and sell stocks yourself. You need to pay a broker to do so on your behalf. Historically, you might have called an individual broker to transact a trade for you; these days it's often just a matter of visiting an Internet based brokerage and filling in an order form.

To make money in stocks, you essentially need to buy a stock at one price, and sell it at a higher price. The increase in price is theoretically due to the increase in the value of the company, based on its financial performance.

In fact, this is the perspective generally taken by "fundamental investors" to make money in stocks. Fundamental investors use fundamental information about a company (primarily its financial performance) to justify buying, holding or selling stocks. Fundamental investors tend to hold their investments for several months at least, often a few years, and in some cases decades.

"Traders" tend to have much shorter time horizons. They buy and sell within weeks, days and - in the case of day traders - hours or minutes. In such time periods the prices of stocks are much more volatile and tend not to reflect corporate value so much as market psychology.

Traders seek to use the short term volatility of the stock market to their advantage. They use "technical analysis" - analyzing trends and patterns in stock prices - in order to spot opportunities to profit on upward, downward and even sideways price movements.

Investors who use fundamental analysis on the one hand, and traders who use technical analysis on the other, take very different approaches to stocks. However, both can make money. Technical analysis has a bit more of a mystique about it because of the "black box" nature of many of the stock trading systems used by traders.

Trading systems can vary widely. Essentially, a trading system is the step-by-step approach used by a trader to make money in stocks. While there are general approaches to trading e.g. trend following, candlestick charting and others, any given trading system is likely to be tailored by the trader to suit themselves.

There's no question that it's possible to make money in stocks. It's also possible to lose - so it's a good idea to learn as much as you can about stock market investing and trading.

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