Stock Market FAQ - Questions & Answers

The stock market is a marketplace for buyers and sellers who wish to make more money out of their investments. However, the market could also be a common ground for uncertainty, as stock prices may suddenly move up and down. This only goes to prove that trading securities is never without risks and volatility.

Even seasoned investors are not totally free from any major slip-ups. But with the higher risks involved, the promise of bigger rewards could only be more enticing. Knowing where, when, and how to invest your money on stocks won't a let a few mistakes take away your resolve to maximize your return on your investment funds. Tools like stock market FAQs (frequently asked questions), investment communities and charting tools help give investors the increased confidence and knowledge they need to make the best investment decisions in their life, with or without a broker.

Fortunately, trading of stocks is now available through online channels. Though investing on stocks won't promise an overnight success, you can always seize the opportunity through online services to buy or sell before the right time passes out. Needless to say, everything you need is right at your fingertips. What makes online stock trading also more attractive to investors are the benefits that come with lower commissions, faster services, and timely decisions to make.

Q. What do investors get from stocks?

A. Buying stocks give investors part ownership of the company. This means that you can benefit from the growth of the company through increase in profits. You get profit shares in a form of dividend checks and also may sell your acquired stocks at a much higher price as you share in the success and growth of the company. But with the opportunity to gain so much more, the other side of investment also comes with higher probabilities for loss.

Q. What's the difference between common and preferred types of stocks?

A. Common stock gives you the right to participate on company issues that may affect future growth. Preferred stock, on the other hand, doesn't come with a voting right. Most investors consider preferred stocks because of the fixed dividend or income share wich tends to be higher than that for common stocks.

Q. What dictates the changes in daily stock prices?

A. Supply and demand affects the movement of daily stock prices. When there is more intensity of buying from the buyers, there could also be a possible rise in stock prices. Meanwhile, when buyers are outnumbered by sellers, the stock price may fall. Supply and demand may also be based on some economic indicators such as the political instability, physical disaster, or rise in interest rates. These will influence the decisions of investors who engage in the selling or buying of stocks that may affect the market trend.

Q. What are the effects of risk on investment?

A. Risk is a crucial part of investments and may at times be inevitable. Fluctuating interest rates and unpredictable market trends only make it more difficult for investors to ensure profit. You can only minimize risks by understanding economic factors that affect your stock and knowing which stock to buy or sell. Nonetheless, you can't eliminate the risk of investing, considering the continuous market swings. Just remember that higher risks involved could also mean promises for bigger rewards. Returns on investment are often measured by how much you're willing to risk.

Q. How can you minimize risks?

A. As an investor, you should remember that there are two flip sides to your coin-- earning and losing money. Before you jump into any conclusion, make sure that the reward will compensate for the risk you're willing to take. Know how much you can actually gain by calculating the risk premium. Always add into equation your financial needs, future goals, and time expectations. Trying to minimize the risks doesn't mean that you can control how the stock prices may float up or go down. But at least, you know what types of stocks might be right for you and how much you're willing to lose or invest on them.

Q. What do investors need to know about market indexes?

A. Market indexes help investors evaluate trends on investment patterns. Although they shouldn't be taken as an absolute forecast, indexes help provide a means for comparison. Numbers may indicate change and these should be taken into consideration by investors who are too eager to buy or sell stocks. Remember that indexes do not represent the entire stock market. They are not as accurate as you think they are, considering that most results are still based on economic indicators or news on actual trading of stocks. Hence, it would still be best to keep an eye on your target stock from a bottom up perspective and make your own evaluation.

Q. What types of service can online brokerages offer me?

A. The online brokers usually buy or sell stocks based on the client's instructions. But in other cases, he can also advise the client of which stocks to buy and when to sell. Other professional brokers may also be hired by investors to decide on trading stocks and investment deals, giving them full control over investment decisions.

Q. Are online brokerage fees too expensive?

A. Most online brokerage services offer lower payment fees. Some may charge you a flat fee, while others may ask for a commission for more complex service offers. It could also be a combination of both. Though these services are said to be more cost-efficient, always watch out for any hidden fees. You may be charged for “inactivity” within a period of time, so make sure that you review the terms and condition of the brokerage agreement.

Q. What are the benefits to reap from using online stocks trading services?

A. With lower overhead cost, you're sure to have a more competitive rate when trading stocks online. Online brokers may offer flat fees or good service package at minimal cost. The service is usually faster and up-to-date, while you can also search through their website for a good variety of investment products and services.

Q. Why do more investors choose online stocks trading?

A. Some investors consider online stocks trading more cost-efficient. Access is easier through the web with lower buying fees involved. This gives a lot of people a chance to earn money anytime of the day. They can act the moment the stocks go up or down and process the transaction faster and easier.

Q. How can online stocks trading help you arrive at the best decision?

A. Online stocks services provide information on updated market changes, real-time price movements, and tips on how to buy and sell stocks. Quick online quotes also help facilitate the information you need before you place an order. You get the best advice at as little time as possible, saving you time and more money through instant sells and purchase orders.

Q. What does day trading mean?

A. Day trading allows you to buy and sell the same stocks in just one day. Though online stocks trading can help you earn more through this strategy, always beware of the risks involved inclduing tax implications. You can still lose a lot of money because of the volatile short tetm stock prices along with the commissions and bid ask spreads.

Q. Which is better, a limit order or a market order?

A. Limit orders may provide higher forms of personal security by giving you full control on setting the stock prices. With market orders, you may have to pay more because of overpriced stocks. My observation is that experienced will tend to use limit orders, but if execution is needed immediately then market orders will be needed.

Q. How should you choose a good brokerage firm or hire a professional broker?

A. Brokerage services don't offer any form of insurance. Hence, you should choose a good financial partner with the ability to manage your investments more efficiently. A good broker should advise you on how to diversify and should have your financial needs and goals first in mind. Make sure that the brokerage firm or service is licensed and the online site is highly secured against fraud.