The old images of stock markets used to be large cavernous stock exchange floors where brokers excitedly carry on with their business of buying and selling stocks.
With the advent of computers and the internet, online stock trading took over the market and made conventional brokerage move into the new frontiers of the future. It brought with it ease, speed, and convenience to the industry.
Reach and edge
When online stock trading came into being in the mid 90s, it drastically transformed the financial services industry.
Its initial edge was in creating a virtual world of trading that is within the reach of anyone from anywhere.
Lower commissions
Online stock trading gave brokers easy and economical way in carrying out their trade. The boom it created was also due to lower commission structure compared to the old conventional brokerage.
Aside from the tremendous increase of online trading accounts, there was also a major increase in the volume of transactions. More and more people became aware of the many benefits afforded by the new online style of doing stock market business.
Easy access
With the advent of the internet, online stock trading brokers all have easy access to the market. With an online stock trading account, a trader can check out real time stock quotes and historical stock price trends.
With a click or two, they can assess the market analysis and do their own researches on various firms and companies. With chat rooms and other forums, brokers can readily interact with other online stock trading brokers.
Less expense
With online stock trading account, it is more economical than asking for help from conventional traders who naturally want to make money out of their clients.
In online trading, brokers only charge a fixed amount of commission in their work. In comparison, fees and commissions of traditional brokerage houses turned out to be more expensive.
Doing away with middlemen
Online stock trading brokers have eliminated the line of middlemen involved in stock trading. It allowed traders to invest wisely and make the old business of stock trading easier and simpler.
It also allowed traders to directly contact online stock trading brokers from anywhere at anytime without any trouble.
Wider investment choices
Today, the traders have a bigger and wider latitude in terms of investments. They can invest in stocks, bonds, mutual funds, mortgages, insurance, derivatives, futures, options, and others.
When trading became online, the choices offered extensive variety of products to the traders.
Rich information source
Online stock trading had bridged the gap between the traders and the commercial market. With the internet, the traders (and the investors) can extract any information related to stocks, companies, market trends, and the like.
Quick deal executions
Today’s computer-aided transactions have speeded up the process of commerce, and not just in online stock trading. Things are now available and accessible to the traders.
Moreover, the processes that sometimes took days and months before can now be completed and done in a matter of minutes.
Online stock trading is a boon to today’s stock market and the whole business of buying and selling. Today, things are much easier, faster, and nearer, all of which translates to convenience.
Put simply, a stock market is the place where people buy and sell shares of stock in publicly traded companies. Brokers connect potential buyers and sellers who agree to transactions at an agreed-upon price.
When the stock market operates the way it should, the most efficiently-run companies will receive more investments than the others who are not. The best businesses will then thrive and those that are not will become extinct or adapt.
Today, stock markets are thriving and are getting more sophisticated. There is now a slow transition of the traditional stock markets (and stock exchanges) into the virtual world and online stocks transactions will all be done online.
For an aspiring investor or a broker wannabe, there are still certain things one should be familiar with in a real-world stock market trading. One of them is the so-called stock index.
Stock indexes
A stock index is the statistical average of a particular stock exchange or sector. Stocks of parts of the same exchange, or the same industry or the same companies are classified and grouped into indexes.
The most common (and well-known) stock indexes in the U.S. are the Dow Jones Industrial Average, the New York Stock Exchange composite index, and the Standard & Poor 500 Composite Stock Price Index.
Stock indexes are usually studied by experts for a definitive look into the overall perspective of the economic health of a certain industry group or the whole of a stock exchange, for instance.
Kinds of indexes
Stock indexes are calculated in different ways, each type serving a purpose. Price Weighted Indexes are those that are based solely on the price of stocks. This index group does not consider the importance of any particular stock or the company size.
The Market Value Weighted Index is the one that does consider the company size of the stocks group with them. This group considers the price shifts of small companies even if they have less influence than the big ones. Another type, the one that is based on the number of shares rather than the total value is called the Market-share Weighted Index.
Other index uses
Aside from giving overall outlook on particular economies, indexes are also used as investment instruments. Passively Managed Mutual Funds are mutual funds based on indexes.
Regular managed funds have been found to be outperformed by this index-based passively managed mutual fund.
The big indexes
The Dow Jones Industrial Average is one of the best-known indexes in the U.S. Presently, it follows the stock movements of 30 of the most influential companies in America.
Dow Jones is considered to be a price-weighted average index because it gives more influence to more expensive stocks. Many analysts say that price-weighting does not really give an accurate picture of the different stock market movements. They also added that 30 companies is still short to form an accurate assessment.
S & P 500 Index
S & P 500 Index is based on 500 US corporations that are carefully chosen to represent a much extensive swathe of the country’s economic activity. Although regarded as second only to Dow Jones, economic experts feel that it is an accurate predictor of the state and condition of the economy.
All in all, stock indexes have a perfect role to perform in a stock market – an indicator of the market’s health or that of its group or even the strength of one particular stock itself in the market.
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