Tools of the Stock Market
- Stock market participation requires certain tools.stock market analysis screenshot image by .shock from Fotolia.com
The stock market is a large and complex financial entity that anyone may engage. The motivations for involvement in the stock market widely vary between investors and traders, but the tools are common for everyone. There are certain essential requirements in order to participate in the stock market. The style and details of these tools vary between providers and products, but all offer the same fundamental features so you can trade stocks. - No one can simply walk into a stock market exchange and buy stock for themselves. Instead, you employ a broker that acquires stock on your behalf and deposits it into your account. Many different types of brokers exist for different investment goals and styles. A full-service broker may handle all the decisions for you, including what stocks to buy and when to sell them. More hands-on services are available that allow you make your own stock trading decisions. The Internet offers online brokers so you can interact directly with your account without speaking to a broker for order execution. Additionally, you have a choice between a cash account or a margin account. Margin allows you to buy more stocks than your cash allows by taking a loan from the broker for every trade. Regardless of your preference, a brokerage account is the most important tool for trading on the stock market.
- Most investors buy stocks based on the success demonstrated in the charts of their share prices. While it is possible to buy shares of stock without any knowledge of the chart, this is not a common practice. Charting software is the next most important tool of the stock market after a brokerage account. Basic charts are available from the Internet for free. These may suffice for many investors. Much more complex charting is available in specialized trading platforms that provide technical indicators to predict price action. Advanced charting software is usually provided by a broker, though some companies only create software which then integrates with other brokers. No matter your preference for detail, a stock chart is an essential tool of the stock market.
- Active stock market traders often require specialized software for quick trade execution. Unlike conventional broker programs that offer simply "buy" and "sell" order systems, an active trading platform is designed to quickly identify profit and loss and provide a visual representation of an individual trade's success. Often these platforms incorporate "Level II" trading data and "Depth of Market" (DOM) screening that provides insight in stock market activity during any moment in time. The stock market quotes provided by these systems allow a trader to not just see current price activity, but also pending orders from other brokerage firms. This allows the trader to see supply and demand information at prices surrounding the current trading price. This tool is not essential for stock market trading, and many do not use trading platforms. However most professionals who trade actively every day employ such software.
