Investment: What Is The Stock Market and What Is a Share?

In recent years are CFD trading in currency pairs and stocks invested on online trading platforms. Some are buying currency pairs; others buy stocks or both stocks and currency pairs.

The rule is to invest in items you are familiar with and in a market you have the knowledge in. The mindset of this article is to write about the stock market and what a share is; the mindset is also to write how the price is set on the market.

What is the stock market?
A stock market is a market where traders buy shares; the market consists of those who wants to sell and those who wants to buy; the price is set by demand and supply; some buy shares in a company because they have a connection to the company; others buy shares due to the analyses they have made about the trend in the market. A well-known example of a share bought as an emotional connection is the Facebook share.

What is a share?
The price of a share is set by the value a company has; an example; the value is set to 10.000 euro and the share price is set to 10 euro; the number of shares on the stock market is 100 shares; the calculation is 10. 000 euro divided with 10 euro. If the traders find the price is set too high they will wait to buy until the price is at the level they value the company.

An example of a company where the value was considered too high is the Facebook share; it was set at around 38 dollars at the time it was introduced on the stock market but fall to around 18 dollars shortly after; the price has since been between 20 and 30 dollars.

What are the earnings on each share?
Investing in the stock market is the hope of gaining a profit in the future; a measure is the price earnings ratio; the price earnings ratio is also written as P/E: the P/E equation is;

P / E = market price / EPS

EPS is the expected earnings; the EPS equation is;

EPS = net income / number of shares

If the net income in the example under the section "What is a share?" is set to 200 euro the price earnings ratio is 5; the equation is;

P / E = market price / EPS = 10 / (200 / 100) = 5

In the example is the price earnings ratio or the P/E ratio 5; it means for every 5 euro investing in this share the expected profit in the future will be 1 euro.

More information about the P/E ratio is on this link.

Social Investment Network: How to Buy Stocks

eToro social investment network is a social trading platform; it is the largest social investment network in the world with traders from more than 140 countries; on the trading platform is it possible to buy stocks, currencies, commodities and indices.

As eToro is a social investment network they encourage the traders to connect and discuss; they also encourage the traders to learn and share knowledge across the network. In the post “Success Stories: Social Investment Network” is a fellow from eToro giving some example of how traders interact.

How to buy stocks on the eToro social investment network
In this video from eToro is illustrated how to buy stocks on the social trading platform.

As the video illustrates is the trading platform in English; if you would like to change the language setting to German, Italian, France or another language watch the video in the post “Social Investment Network in your language”.

More information about the social investment network visit my website; on the site is a link to the trading platform.

Trading in the Stock Market: Dollar Cost Averaging

Dollar Cost Averaging is a trading strategy; an investor has an amount each month which he uses to invest in.

The strategy is that he invests the same among each month even if the price goes up or down over a fixed time period.

An example
An example is an investor; he has 100 dollars which he is allowed to invest each month in stocks the next three months.

The first month is the stock price 10 dollars; he buys 10 units of the stock; the next month is the price 5 dollars; even as the price is lower he buys the stock; as the price is lower he buys 20 units; the next month has the price risen to 7,5 dollars and he buys 13,33 units.

What is the investment capital in month four?
In month four is the amount of units 43,33; the investor bought at different prices in the last three months; he has invested 300 dollars.

If he had bought the stocks the first month to 10 dollars he would have bought 30 units; if the price in month four has fallen to 6,8 dollars his investment capital would have been 204 dollars (6,8 times 30 units); he would have had a loss of 96 dollars.

Instead he brought the stock units at different price levels; if the price is 6,8 dollars a unit in month four his investment capital in month four is 301 dollar (6,8 times 43,33 units). His investment has made him a 1 dollar profit.

If the price instead had raised to 8 dollars his investment capital would have been 346 dollars (8 times 43,33 units) and he would have made a profit of 46 dollars. If he had brought the units at 10 dollars the first month he would have had a loss of 60 dollars as his investment capital would have been 240 dollars (8 times 30 units)

In the video I found on YouTube is a woman explaining the Dollar Cost Averaging strategy with an example.

The video is available at this link as it was not possible to embed the video in this post.

Is dollar cost averaging a good idea?
If the market is in a downtrend the dollar cost averaging could be a good idea as the example above shows; but if the market is in an uptrend is the strategy not the best investment comparing to investing all at one time as the price is rising.

I found an article on the internet with the title “Is Dollar-Cost Averaging Dumb?”; in the article is a research of what is best; invest all at one time or invest over a time period (Dollar Cost Averaging); the research showed that is was better to invest all at one time; the cause is that prices has been rising over time.

“Is Dollar-Cost Averaging Dumb?” (The article) is on this link.

Trading in the Stock Market: What is a Trailing Stop?

A trailing stop is a stop Loss in a trade to prevent a loss to be too big; if a trader sets the trailing stop to 6 pips it means the trade will stop if the trade falls 6 pips.

I was on YouTube and found a fellow explaining the use of a trailing stop; One of the issues he talks about is how wide a trailing stop should be; watch the video and hear how he explains the use of trailing stops.

The video is available at this link as it was not possible to embed the video in this post.

Trading in the Stock Trading: How to trade breakouts

In one of my previous posts I've written about how to screen the stock market for the shares you want to trade.

In this post I have found the same fellow on YouTube explaining how he trades breakouts; watch the video and see some of his techniques in trading breakouts

Trading in the Stock Trading: How to screen the market for stocks?

I was at YouTube and found a fellow explaining how he screen the market for stocks; some of the things he look at is which country the stock is in and the volume in the market for the stock he has chosen.

Watch the video and see how he screens the market for stocks.

Trading in the Stock Market: Stock Trading Strategies Opening Range Trading

In this video is a fellow explaining how he has developed a trading strategy called the “Opening Range Trading”.

In the video he watches the chart 30 minutes and call the range the “Opening Range”; he waits for a confirmation and open the trade; watch the 10 minute video and get all the information about the trading strategy “Opening Range Trading”.

Leave a comment below if you like others to learn a trading strategy you have developed.