The stock market has been one of the prime subjects of investors during the pandemic, as many new traders are looking to find new ways to generate income. This financial sector first came to life back in 1611 when the Amsterdam stock exchange was created. Since then, it came under global scope where currently nearly every country has its own exchange.

The company that wishes to sell its shares to the public must register itself on the exchange. A firm can enlist in multiple exchanges to manage the liquidity issues

The major exchanges in the US are:
  • National Association of Securities Dealers (NASDAQ)
  • New York Stock Exchange (NYSE)
  • American Stock Exchange (AMEX)
A specific symbol is given to it, which is used to recognize and trade the stock. For example, Amazon is available as AMZN and Microsoft as MSFT.

What is regulation?

Regulation in the financial industry refers to applying strict measures on exchanges and brokers to maintain fraud-free trading. Regulators keep a severe eye on brokerages and fine them if they manipulate quotes or do stop hunting. In the United States, the US Securities and Exchange Commission is responsible for enforcing laws on securities.

Trading Hours

The stocks trading hours can vary from one exchange to another. The New York Stock Exchange, formed in May 1792, is open from Monday to Friday from 930 am till 4 pm Est.

The share industry is also traded after market hours, but it is mainly limited to top financial institutions and banks.

Stock Brokers

Traders can sign up on brokers to access quotes and trade shares. Previously, the process was tedious as traders visited an exchange or called them to place orders. Now with the internet and technology, it is possible to do the same from the comfort of home.

Due to the wide competition between different brokers, the costs are minimal, and facilities are high for traders. The trading platform is provided by the broker or a third-party company and is used for analyzing charts and placing trades. It is also possible to backtest your robots.

Other than stockbrokers, the major participants of the market are portfolio managers, bankers, market makers, and custodians.

Trading Strategies for the Stock Market

There are various strategies to trade the stock markets. They use a fundamental and technical approach to speculate securities using proper risk management and mindset.

Fundamental strategies include analyzing the share price using economic events such as earning reports, cash flow, etc. Such traders trade the market for the long term as these factors take a long time to unfold.

With a technical approach, traders can use multiple tools such as support and resistance, supply and demand, Fibonacci intervals, and market structure for trading. This form of trading gave rise to scalping and day trading, where investors trade the markets in a fast manner.

Let us go through a few technical strategies that are common in the stock market.

Bollinger band is an indicator that can be used to determine the current trend and support or resistance. It consists of an upper and a lower band that can act as a possible hurdle for the price when the market is ranging. They can also show us if the market is volatile or not.
Image 1. The M5 chart on Microsoft shows how the Bollinger bands move apart when the market is volatile and squeeze when it is ranging.

Analyzing market structure is one of the common ways to determine the current trend. To identify it on the chart, investors have to point out the higher highs and lows, respectively.
Image 2. The 4-hour chart on C shows us that the current long-term trend for the stock is moving downward. Consequently, it is possible to short the security when it reaches the trend line again.

Algorithmic trading is also becoming more popular nowadays. Expert advisors trade the markets based on their coding and generate stable income depending on their profitability.

Stock Indices

Stock indices show us a combined movement of a particular set of securities. For example, the S&P 500 gauges the price of the fortune 500 companies in the US. Traders use it as an indicator to trade other stocks with a lower value as they follow the major trend adapted by the indices.

Benefits and Demerits of Trading Stocks

Let us list some of the important benefits of the stock market:
  • Diversification. Trading stocks allow traders to diversify their portfolios. Indices are a popular choice for traders in this regard as it enables equity to spread itself in multiple securities.
  • Income. There are many ways to make money in the share market. Traders can earn through dividends, capital gains, and speculation. It is possible to trade equities on both long and short sides.
  • Liquidity and volatility. There are hundreds and thousands of stocks available to trade on different exchanges. The price movement and the volume are different from each other. Traders can select the one that fits their needs and trade it accordingly.
  • Easy to trade. Learning how to trade stocks is an easy process. It may take some time before you get comfortable with the market, but it is possible to trade on a virtual account until then.
While the benefits of the market are widespread, some cons demand attention from traders.
  • Risk. The high volatility in the market can be risky for investors. It is possible to lose an entire portion of your investment if the leverage or risk per trade is extremely high.
  • Fluctuations. The stock market is prone to extreme volatility if there is a disturbance in the economic conditions. This can be detrimental for both swing and day traders.
While the stock market is a healthy option for traders looking to make a stable passive income, it can be deadly if an investor jumps in with no knowledge. Beginners should spend their initial months or years trading a demo account or with low cash to understand the process of equities.