If you decide to become a professional speculator and make money on the difference between buying and selling any goods, then for a start it would be nice to find out what a stock exchange is and determine which stock exchange is best used for trading.
The exchange is a legal entity, a commercial enterprise, which acts as an intermediary in transactions of sale. In fact, this is an organized market in which there are its own governing bodies, the Memorandum of Association and the rules of tendering.
The main objectives of the modern exchange:
- provide potential buyers and sellers with information about current and future prices for the goods, subject to the conditions of price transparency;
- regulate the same purchase and sale rules for all participants;
- act as a guarantor of the honesty of transactions between buyers and sellers.
The formation of the exchange price is influenced by many conditions: productivity, political situation, the state of the world economy, sudden news, etc. One of the tenets of exchange trading dampens: "The price takes into account everything." Currently, in every corner of the globe, when pricing a certain product, they are primarily guided by the prices of the largest exchanges.
A significant difference between the exchange and the market is that there are no tangible goods or paper money on the exchange. All transactions are made by agreement of the buyer and seller. And modern technology allows you to record the consent of one side to sell, and on the other hand, to buy goods almost instantly, electronically connecting the two sides of the transaction via the Internet.
Depending on the type of product, exchanges are divided into futures, stock and currency. And according to the method of conducting, exchange trading are pit and electronic.
What is a stock exchange (stock exchange)
This is the exchange where securities - stocks are traded . The promotion is an official certificate of ownership of part of the company. When people believe that a certain company has good prospects, they buy its shares, which pushes prices up.
Quotations of shares and the formation of an opinion about their prospects directly depends on the level of income of the company, its reports, the amount of dividends. The market in this case reflects the sum of the opinions of all participants about the value of a company. The fall in stock prices often means that holders of large packages begin to sell them. Therefore, as professional stock speculators say, “buying cheap is good, but it’s not good to buy what is getting cheaper.” Rapid decline or the extreme low cost of stocks - an occasion to think about the appropriateness of the purchase.
A potential stock speculator should develop its own system for selecting the most promising stocks, using both technical analysis and economic data on companies.
What is a futures exchange
Futures exchanges are also called commodity exchanges, because they trade quite tangible things: grain, metals, oil, meat, etc. When a transaction is concluded, a futures contract is fixed, according to which the buyer is ready to purchase a certain amount of goods in the future at a fixed price. At the same time, he makes a certain insurance deposit called a margin to the broker (intermediary on the exchange). Thus, the buyer guarantees the transaction. The seller makes the same margin.
Each futures contract has its own billing period: most often it is one, three or four months. During this time, the price can fluctuate significantly, bringing significant profits to buyers or sellers. Before the physical delivery of goods, now it comes to only 5% of all transactions, and even then, provided that the contract was not concluded for speculation.
Futures can make a profit much faster than stock transactions. But the risks in such operations are much higher, since you need to predict the price movement over a limited period of time.
What is a currency exchange
The Forex currency market, in fact, is not a stock exchange, since it does not have centralized management or uniform prices for execution. This is a large market where large banks and dealing centers are trading. Therefore, fraud with quotes here is quite common. But still, a currency exchange exists. For example, the largest Chicago exchange SME offers its customers the ability to centrally trade the world's largest currencies, while taking advantage of all the guarantees and advantages of exchange trading.
Which tool to trade for depends on the level of professionalism, starting capital and risk appetite for a particular person. For example, the stock market is the most capital-intensive, but at the same time the least risky, if you buy stocks for the purpose of long-term investment.
The second place in terms of risk is the futures market, since the initial deposit there is much less, but the possibility of losing it is much higher due to the use of the so-called “leverage” that the broker provides.
The most risky is the foreign exchange market, since fluctuations in currency quotes, round-the-clock price changes and a high level of “leverage” increase the likelihood of losses to 95-97%.
The most important thing when starting an exchange speculation is to remember that you can invest in exchange trading only the money that you are willing to lose without lowering the standard of living - yours and your loved ones.