Posts Tagged ‘stock market crash’

Ethical And Legal Obligations

Sunday, July 17th, 2011

The dominant means of communicating the financial effects of organizational activities and transactions of a company to outsiders is the financial reporting system. This reporting system includes communicating financial information through various forms such as a prospectus, forecasts, annual reports, and other financial releases. Financial statements are the main source of information given to external parties.

The reporting process is a means of increasing the trust placed by investors, lenders, and others in the entities with which they deal. The financial reporting process itself relies on trust of its users, and this trust has been threatened due to unreliable and deceptive accounting reports. Financial reporting is created to meet the needs of users by providing information that is relevant to making rational investment and credit decisions, and other informed judgments.

Does fraudulent financial reporting represent the Achilles’ heel of the U.S. Corporate Financial market? Accounting scandals are not new. Episodes of fraudulent accounting have occurred repeatedly in the history of the U.S. Financial markets. The SEC, FASB, and PCAOB were established to provide government enforcement of corporate honesty.

In the outcome of the stock market crash of 1929, public attention and congressional investigation led to allegations of offensive practices by plenty of financial market participants during the preceding boom. This activity led directly to the creation of the Securities and Exchange Commission in 1934. One of the founding principles of this agency was that companies publicly allowing securities for sale in interstate commerce must tell the public the truth about their business. The primary means of communicating the financial effects of organizational activities and transactions of a company to outsiders is the financial reporting system.

In the early 1970s as with today, accounting problems raised concern within the accounting profession. To settle the critics the Financial Accounting Standard Board (FASB) was built and began work on the Conceptual Framework Projects.

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Bonds For Beginners Part One

Saturday, July 10th, 2010

If you paid attention in economics class, you may have heard the phrase “stocks and bonds” thrown around a few times. Stocks and bonds are both securities (a security is a negotiable “instrument” that represents financial value), and therefore both stocks and bonds can be utilized to finance a business and business activities. But, there are main differences between stocks and bonds.

A loose definition of a bond would be a contract to repay borrowed money along with interest at set dates. An authorized issuer will owe a bond holder a debt, and most of the time will need to pay interest and the principal at a later date. This later date is called maturity. So, you can see that a bond is a lot like a loan, the issuer is the borrower, the holder is the lender (the creditor) and the coupon is the interest. Bonds are repaid at fixed intervals over a period of time.

Stocks and bonds differ because stockholders share a fraction of ownership in the company, while bondholders are creditors to the company. Another way stocks and bonds are different is that bonds generally have a set time span in which the bond will mature, whereas stocks have the capacity to be outstanding indefinitely.

Bonds have be issued by credit institutions, companies, and public authorities. The most common way to issue bonds is through a process called underwriting. This is when one or more banks buys an entire issue of bonds from an issuer and re-sells them to investors. Professionals known as bookrunners arrange this deal, speaking directly with investors and advising the bond issuer about the price and timing of the bond issue.

All bonds have many of common features. A bond will have what is called a nominal (principal or face) amount, which is the sum of money on which the issuer pays interest. A few types of bonds can be redeemed for a different amount than what they were issued for and may be linked to performance of certain assets like a stock index, foreign exchange or a fund. This can sometimes result in an investor getting less or more than her original investment when the bond matures. To be continued in part two

Mallory Megan works for Rapid Recovery Solution and writes articles on medical collection agencies.

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Stocks For Beginners Part Two

Saturday, July 10th, 2010

In part one of my primer course on stocks, I wrote that businesses divide stocks into shares, and that each share represents a fraction of ownership. I told you that shares may come with various ownership rules, privileges, or share values. Also, I let you know about the two forms of stock: preferred stock and common stock. Now we’ll talk about shareholders.

A shareholder is a person or company that legally owns one or more shares of stock in a joint stock company. Shareholders get special privileges that depend on the class of the stock. Privileges include: the right to vote on matters like elections to the board of directors, the right to share in distributions of the company’s income, the right to buy new shares that are issued by the company, and the right to a company’s assets when a company liquidates. Directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders.

Owners of a company may sell shares to build additional capital for investing in new projects within the company, or to get rid of some of their holding so they have more money freed for their own private use. When you buy a share you are literally sharing in the ownership of the company, a fraction of the decision making power, and potentially, a fraction of the profits.

Because there could potentially be thousands of shareholders in a large publicly traded corporation, shareholders will use their shares as votes in the election of members of the board of directors of the company.

Usually, each share equals one vote. Corporations might issue different classes of shares though, which might have different voting rights. Because shares are proportional to votes, owning most of the shares permits other shareholders to be out voted, which is how original owners of a large business will usually still have control of the company. To Be Continued In Part Three.

Mallory Megan works for Rapid Recovery Solution and writes articles about commercial collection agencies.

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Stocks 101 Part Four

Saturday, July 10th, 2010

In parts one through three of my primer course on stocks, I said that the stock of the business was the original amount of money that went into founding it. I let you know that companies divide stocks into shares, which can be bought or sold to shareholders, who are people or companies that own one or more shares of stock and therefore “share ownership” of the company. I spoke about stock brokers who are people that will charge you to arrange the purchasing or selling of stock. Now a bit buying and selling stock.

As far as financing a purchase of stock, there are two ways to do it: purchase stock with money that is currently in the buyer’s ownership, or by purchasing stock on margin. When you buy stock on margin you are purchasing stock with money that is borrowed against the stocks in the same account. In other words, you utilize the stock you already own as collateral to guarantee that you can repay your loan. Otherwise, the stockbroker can sell the collateral to repay the money it took to buy the other stock.

Selling stock works pretty much the same way as buying stock. Usually, the investor is going to want to buy low and sell high. After a broker takes out his fee for arranging the transfer of stock from a seller to a buyer, the seller is entitled to all of the money.

The price of a stock will fluctuate with the theory of supply and demand, supply being the number of shares that are offered for sale at any one moment, demand being the number of shares investors want to buy at that exact same time. When people who want to buy stock outnumber people who want to sell stock, the price will increase. Eventually, sellers will see how high the stock is being sold for and start to sell their stock, or buyers will leave and equilibrium will be achieved between buyers and sellers. When sellers outnumber buyers, the price falls. Eventually buyers come back in or sellers leave, and equilibrium is again achieved. Therefore, the value of a share of a business at any given moment is determined by all investors voting with their money.

Of course, all of this does not offer any explanation as to how people decide the maximum price at which they are willing to buy or the minimum price at which they are willing to sell, people’s buying and selling habits, or what stock will be more valuable when. People spend lifetimes trying to figure that out, it is still up for debate, and if I knew, I would not be here typing about stock, I’d be on my luxurious yacht! But I hope that my primer course on stock was at least a little enlightening.

Mallory Megan works for Rapid Recovery Solution and writes articles on medical collection agencies.

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Understanding Stocks For Beginners Part Three

Saturday, July 10th, 2010

In parts one and two of my primer course on stocks, I let you know that the stock of a business represents the original amount of money that went into founding it. Businesses divide stocks into shares, and each share represents a fraction of ownership. I wrote about shareholders, who are people that own one or more shares of stock in a joint stock company and “share ownership” of the business. I informed you that they have special privileges depending on the type of stock they own, and that they can utilize their shares as votes in the election of members of the board of directors of the company.

Even if you owned fifty percent of a company’s shares and therefore own fifty percent of a company, you don’t have the right to use a company’s equipment, materials, building, or other property. This is due to the fact that the company is considered a legal person that owns all of its assets itself.

And even though owning shares means part ownership of a business, it does not mean responsibility for liabilities. If a company goes under and has to default on loans, the shareholders won’t be liable in any way. On the other hand, when it comes time to repay loans and debts, the creditors must be paid first, oftentimes leaving shareholders with nothing.

Shares of a business have the ability to be transferred from shareholders to other parties by selling, and stock markets have been established for trading shares and other stock derivatives. Even though there are various methods of buying and financing stocks, investors will usually be represented by stock brokers, people who buy and sell shares of a wide range of companies.

Stock brokers can be full service, or discount. Full service brokers will charge more per trade, but offer advice when it comes to investment or personal finance. Discount brokers will offer little or no advice but charge less for trades. A third type of broker would be a bank or credit union. Another way to buy stock is to buy the stock directly from the business itself. If you own at least one stock, most companies will permit you to purchase shares directly from the company. To Be Continued In Part 4.

Mallory Megan works for Rapid Recovery Solution and writes articles on commercial collection agencies.

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What Happens When A Stock Market Crashes?

Saturday, July 10th, 2010

A stock market crash can be summed up as a situation where share prices of stock listed on the stock exchanges plummet. Despite the fact that there are many economic variables that will cause a stock market crash, two main reasons for stock market crashes are also the investing public’s loss of confidence in the economy and mass panic.

Oftentimes, the results of stock market crashes can be brutal for a country’s economy. There have been notorious stock market crashes that resulted in the loss of billions of dollars, and as an increasing number of people become involved in the stock market, crashes have touched more lives recently.

One of the most notorious stock market crashes started on October 24, 1929 and would be known as Black Thursday. The Dow Jones Industrial lost fifty percent during this stock market crash, kicking off the beginning of the Great Depression. Another famous crash happened on October 19, 1987, also known as Black Monday. The crash started in Hong Kong but quickly blazed around the world.

By the close of October, stock markets in Hong Kong had fallen 45.5%, the United States had fallen 22.68%, and Australia, Spain, the United Kingdom and Canada suffered from huge problems additionally. In stock market history, this marked the largest one day percentage fall - the Dow Jones fell by 22.6% in one day.

Nobody could seem to explain the crash in 1987. The main news and events at the time couldn’t predict the disaster and any obvious reasons for the collapse could not be identified. This crash brought many questions to the minds of economists about the theories and assumptions of modern economics. After the crash, computer systems were upgraded in the stock exchanges to handle larger trading volumes more efficiently. The New York Stock Exchange also introduced the concept of a circuit breaker, which halts trading if the Dow declines a prescribed number of points for a prescribed amount of time.

Mallory Megan works for Rapid Recovery Solution and writes articles on credit collection agencies.

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Strategies For A Stock Market Crash

Friday, February 26th, 2010

There are a lot of experts out there who are claiming that the market will fall back down and create another great depression. In reality no one knows were the market will be for sure, but if it does go down there are still plenty of ways to make money.

In fact money can come faster in a bears market then in a bulls market because when stocks go down they tend to go down pretty fast, faster movements means faster profits. So, just how can you make money when your stock goes down? Simple there are 3 big methods that allow you to profit from a falling stock.

1. Shorting Stocks

Shorting is the process of borrowing a stock from your broker and selling it on the open market. The idea is to sell it before the stock is going to o down. This way when the stock does go down you can buy it back at that lower price and return it to your broker.

2. Buying Puts

Put options give traders a way to make much higher returns in a falling market. When you buy a put you simply buy the right to sell a stock at a given price. As the price of the stock goes down your option becomes worth more. After all if you have the right to sell a stock at $50 it should be worth more if the stock is trading at $30 then if it is trading at $60.

3. Selling Call Options

The last strategy involves selling call options. When you sell a call option you give another investor to right to buy the stock from you at a given price. As long as the stock stays below the strike price of the call it eventually expires worthless and you walk away with the money.

There is one downside to selling calls, and that is the amount that you can lose is unlimited. This is because there is no limit to how high the stock can go. However you can still get around this, for example if you sell the $70 call you can always buy the $75 call giving you less risk because the most you can lose is $5. Your gain is also limited, but it can still be worth it.

Learning what caused the great depression and how to make money in that situation can help you to prepare in case we see another crash like the Stock Market Crash of 1929

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Bear or Bull? The Fragile Global Economy and Stock Market

Friday, December 11th, 2009

It’s been a difficult year for economics all over the world. With the tumble of the United States economy, in large part due to the absolute plummet of America-based stock markets, including the NASDAQ, a ripple effect was set into motion that reached further than many analysts could have predicted. While many talking heads experts recommended that it wasn’t a time to sell back in October of 2008, as the picture became clearer, many financial gurus were left scratching their heads in confusion.

While those scientists of the stock market might have just been bewildered, regular people all over the world were more like stupefied. With so much faith in global economic systems, including the overall stock market, and the understanding that governments are supposed to have a series of checks and balances in place to avoid potential catastrophe, the grim dismal situation was first met with disbelief by regular people.

The world stock market’s value has been estimated at close to seven hundred trillion dollars, with the role of the United States economy in that market significant, at around forty trillion dollars. However, the last year or so has been a see-saw ride of recovery, with times looking up and times looking extremely dismal. Entire countries have been bankrupted through the cause and effect of foreign investments. Famously, the entire country of Iceland, a small island nation with only two or three national banks, managed to lose the entire country’s savings just because of the faltering power of the dollar and the Euro in unison.

One of the reasons that the last stock market crash led to a global stock market crash is that industry is much more international now than ever before. Large corporations don’t simply do business in a single country: they are located on numerous continents, trading in more than one stock market, and generating large revenue by conquering the global market. Thus, if investments and capital are tied in on such a wide scale, it’s no wonder that something that upsets the balance of one or two markets could continue to ripple and have such a far-reaching impact around the world.

It’s possible for Americans to try their luck on the Hong Kong exchange and for those in Europe to buy a great deal of stock in a publicly-traded American company. And the business whose job it is to regulate these sort of trades, as well as the investment companies dealing in mortgages, are supposed to have systems in place to sound the alarm if things start to go downhill.

Unfortunately, in the past ten years, that hasn’t happened fast enough. With the real estate market booming in the United States, a number of different companies represented on the floor of the New York Stock Exchange by hordes of high-strung brokers were dealing in mortgages that the borrowers could never have possibly paid back. When the banks and mortgages houses finally got wind of what was happening, everyone made such a fuss about backing away quickly that the economy went right with them.

The most recent mess was further helped along by people bailing out immediately, with no concern for local governments stressing the importance of the system keeping participants. Many banks in Europe and the United States tanked or were on the brink of tanking, requiring extensive government bailouts that are doing their own personal number of large nation’s economics, and thus, the global economy as well.

Understanding the global stock market is difficult for regular people, especially in such difficult economic times, but it’s always helpful to keep one fact in mind when trying to keep up with the financial news on television and the radio, as well as in the newspaper: the recent occurrences were baffling trained watchers and economists, so whatever doublespeak or deception is currently in place, it was designed not just for regular people to miss, but for highly trained professionals.

Damian Papworth enjoys stock market trading. It is a major part of his work from home income.

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What Everybody Ought To Know About Currency Trading Systems

Tuesday, May 12th, 2009
by Dr. Asoka Selvarajah

Forex trading is definitely one of the easiest ways to earn unlimited profits. But is it really easy to trade in the Forex market?

If you do some research online, you will notice that the web is filled with e-books and sites that contain information about the latest and the best trading systems. Before you plan to invest any serious money in any one of them, you have to check if the assumed trading system really works. There are many faulty systems that may not work and they might have been constructed in a short span of time make quick bucks. It is most certainly possible for you to create a reliable trading system that you could depend upon and anticipate success. A reliable forex system can fetch continuous profits for a long period of time. However, it is an enormous task and you need to be very practical when it comes to forex currency trading systems.

What is the exact meaning of forex trading? The other term for forex trading is currency trading. If you want to trade in foreign exchange, you have to open a trading account with a small amount of money. Forex trading is open to anyone who is interested in it.

There are many factors to consider if you are willing to trade currencies and are searching for a good trading system. Firstly, the trading system should have a logical setup. If you cannot follow the system, it might not be of much help to you. You must understand the overall logic of the system if you want to use it productively. Does the system match with your own way of seeing things? Practically, it should match with your views lest you might struggle while trading. When the system is in line with your thinking, you will not find it very difficult to stay with it for a long time.

As you are just beginning to trade, you must be aware of the pitfalls initially. You may not know when you are going to be burdened with a low trading capital due to an unexpected turn in the market. This happens all the time. Even when you are faced with a downturn, the most important thing is to stay in business.

The Forex market is rapidly shifting and simple systems can work effectively. There are complicated trading systems out there but this is no guarantee of success especially if you have no clear understanding of their underlying logic. Rather, you should pick a system that is intuitive for you, user-friendly, very rational and disciplined. Many traders fail because of their own negative emotions, which totally undermine their ability to trade a fixed rules system. You must be able to control your emotions completely so that your trading decisions will be unaffected.

The forex market gives lots of profit-making opportunities. As long as the value of currencies fluctuates, cautious traders can always make plenty of money. If you are pretty serious about this and want to be successful in foreign exchange trading, you must analyze the markets thoroughly for a long time to follow how it functions.

Search the perfect trading system that will suit you, either it could be made by your or bought from a well-known company. Also remember that apart from trading of currencies, you can also try out futures and options trading. Option trading is different in that it involves trading of rights of stocks. It is also applicable to trading of the rights of foreign currencies.

An important point is that the system you create or buy should be valid in several other systems too. When you have a profitable trading system, you have the resources to trade in many markets quickly and efficiently and earn money from all of them. This is achieved through hardwork, practice and perseverance.

About the Author:
Discover FREE expert Trading videos, podcasts and articles packed with secret strategies to super-charge your Trading and rocket your profits. Dr. Asoka Selvarajah also offers you his critical FREE report, The 7 Deadly Mistakes Of Online Trading. Visit His Online Trading Site (OnlineTradingRebel.Com) Right Now!

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A Stock Market History Guide

Thursday, April 30th, 2009
by Matt Harris

The more you understand about any subject, the more interesting it becomes. As you read this article you’ll find that the subject of stock market is certainly no exception.

Keep in mind that the risk-reward dynamic is a little more volatile in the stock market than it is in other alternatives. Closure would be a good time to compare stock market investments to other alternatives.

Early in our country’s history and stock market history, Boston was the original financial center of America. In Boston bonds for projects that included roads, canals, bridges and commodities such as hides and molasses, were sold and bought by dealers in Boston. According to stock market history, the first organized stock exchange was created in 1792. NYSE is arguably the oldest and most well known of all the American stock markets. Welcome to one of the worst years in stock market history! Hopefully, the 2009 will not be the worst year of the stock market history.

Then, when the cycle turns against them and the risks turn sour, they try to cover it up and begin lying to their customers, to regulators and to each other. Trust erodes, and the whole thing collapses. We appear to be entering one of these historic cycles at this seminal point in the maturation of the human race.

It seems like new information is discovered about something every day. And the topic of stock market is no exception. Keep reading to get more fresh news about stock market.

The main reason is that people are naturally cautious, especially with their own money, and the return on stocks is highly volatile from day to day. This inclination toward caution is perfectly reasonable, reflecting an intuitive understanding of an important financial truth: the average return is not the only thing that matters when evaluating an investment. Shiller, a respected expert on market volatility, offers an unconventional interpretation of recent U.S. He warns that poorer performance may be in the offing and tells us how we–as a country and individually–can respond.

The inclusion of the names of certain stocks is only for educational purposes and not as a recommendation to buy, sell, hold, or short the stock. Trademarks mentioned are owned by their respective trademark holders. If such a time comes, and your stock is close to your buy in- sell it. Then when everyone is preaching hellfire and damnation, saying the next depression is here, buy the hell out of it. Even before the market opened, major securities houses were being flooded with sell orders. By the time the market closed for lunch at midday the Nikkei average of 225 stocks was down a record 1,873.80 yen to 23,872.80, a drop of about 7.3 percent.

Why not just ignore the volatility and collect the increased risk premium from stocks? That is the message of those who believe in “Stocks for the Long Run” and also from those who want you to invest in their long-only mutual fund or managed account program. Google Stock has a beta of .81, indicating that the stock price fluctuations are less volatile that the movement in the stock market. This crash and burn showed just how risky and volatile the stock market was. The crash also went to show that so-called “booms” in the stock market only last temporarily.

About the Author:
Learn more about the stock market history and find out how does the stock market work at ForexMomentum.info

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