Stock Market Investing For Dummies

From: Stock Market Investing For Dummies

All too often, stock market investing is made to seem more complicated than it is. We have called this site Stock Market Investing for Dummies because when we first set out on a journey we have so much learning and understanding to do. Please don’t feel slighted by the term; it is intended to inject a little light-heartedness into the proceedings.

The basic concept of investing in the stock market revolves around the stock itself. A share of stock is a part of ownership in a particular company. When a company “Goes Public” they are making part of their shares of stock available on a major stock exchange, where you can purchase and sell those shares of stock.

Everyone has heard of the concept of buying low and selling high, and in reality the fundamentals behind the principal are not all that hard to understand either. A stock’s value is dependant upon its demand. When the value is low, there is very little demand for the stock. If the company then releases a dividend, or unveils new business plans, this can get other investor’s attention and increases its demand or value.

To make the most amount of money, you have to know when a particular share will be more in demand before the other investors do and that in itself is an advanced technique you will begin to understand as you gain more experience. Buy low and sell high, but in order to make the best profit, you need to buy low before the other investors do and sell high right before the demand fades away. Too late and you lose money, to early and you also lose money. Give it time and practice and soon you will be trading like a professional.

When it comes to stock market investing for dummies, all that you really need to know is that you want to purchase a share of stock when there is little or no demand. However this is tricky because you want to make the purchase with an anticipation of the increase in demand for a stock.

Stock Market For Dummies – Update

In today’s economic climate it is even more important that your research is as thorough as it possibly can be. Scout around this site before you invest in any equity related instruments – click on links and read as much as you possibly can. Don’t get caught out through lack of knowledge.

Many people see all the stock market investment software that is available on the internet and are wondering if it actually works. The answer to this one is a bit difficult to explain because there are some pros and cons that must be taken into account.

For starters, these programs analyze the ticker for the data. With the thousands of stocks out there to choose from, the ability to monitor them all on a continuous basis is difficult for a human, but not for a computer program. When they see certain patterns occur to a particular stock, they let alert you to the fact.

The goal is to purchase when the program tells you to because the value is increasing. However, this can also be misleading because if a share of stock jumps abruptly and tops out, you may be purchasing the stock at too high a level.

Furthermore, these programs also attempt to determine when you should sell; however sometimes this alert can come too early or even too late causing you to lose money.

Using your own common sense is very important. You need to keep an eye on business news while at the same time pay attention to what the program is telling you. If the program is telling you to buy, and your common sense is telling you not to based on the actual news you are hearing, then simply do not buy.

The only way for you to truly make money is through the development of your very own trading strategy which focuses on your strengths. When you first start to invest, a stock market investing software package can help you to build up the experience needed to start developing your own investment strategy, to the point that you will no longer need the Stock Market Investing For Dummies Guide.

Update

Given the turbulent times we have experienced of late, it is the opinion of The Stock Market For Dummies Guide that automated stock investment software is too volatile in today’s market to be of any benefit to the beginner investor. These times will present some fantastic opportunities for the shrewd investor, but any decisions should be made without the aid of automated software.

The Stock Market For Beginners: 7 Starter Tips

From: Stock Exchange Secrets

Other pages in this 'Stock Market For Beginners' section of the site look at the kinds of things that a new investor should do to help themselves. However, these were written in essay format and so for some time it has been on the 'to do list' to make a list and simplify the stock market for beginners tips.

Here we go...

1. Investing is not a hobby. To big merchant banks, it is a very competitive business. Therefore, you should also treat it as a business. That means understanding your own profit and loss as well as the companies in which investments are made.

Once this thought pattern is established, it makes the whole process so much easier. Simply ask, "Will this investment / trade / software / subscription make or lose me money?" Once an answer has been established, a clear course of action will present itself. 

2. Get some great investment management software. These days, a speedy internet connection and good money management and investment software costs virtually nothing. Why spend the time and effort trying to figure out the best ways to do things when solutions already exist.

Ideally, look to purchase two types of software. One will be for personal money management. This can be used for profit and loss and keeping track of the costs of subscriptions, stockbrokers and the like. The other will be used for tracking stock and fund prices, storing company news, technical and fundamental analysis and more.

Click Here To Watch Free Trading Videos

3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help.

4. Learn about money management. Every investor will have the occassional (at best) loser and it is vital that no individual holding can wipe out a portfolio. Understanding asset allocation is vital.

Years of talking to people about investments has taught me that there are fundamental differences between the way investors behave. New investors ask for 'a tip' and want to know, "What should I buy?".

In contrast, professionals do not want tips. They have dozens of good ideas of their own. They won't be sharing those ideas with you and they will not be expecting you to share yours. Instead, they ask about how you allocate money. "Which sectors and markets do you like and why?" The difference between these approaches is like night and day.

5. Read widely. Getting a wide ranging education in personal finance, corporate finance, taxation, economics and investment theories will help. However, finding areas of the world or business in which you can become relatively expert can help in the process of finding investments.

The reality is that in the modern world - especially with the power of the internet - there is very little information that is not in the public domain somewhere. However, the world now has information overload. Whilst the information might be available, few people now have the time to find or understand it. The people who know these things and can 'join the dots' have regular opportunities for stock market investment.

Once the basics have been covered and understood, it may be that just one or two hours of reading each week will be enough to keep knowledge up to date. But keeping up to date is vital.

6. Find a good investment service to subscribe to. Many of the suggestions above can now be covered by joining just one stock market service. These services now aim to pick stocks, offer trading and portfolio management software and educational services too. If things go well, then by investing in the stock market picks, the service can be paid for with profits.

Though these services are often not 'cheap' they are generally very valuable and can help to make an investor or trader profitable whilst learning the ropes. This is a great way to learn or experience the stock market for beginners.

Watch Free Stock Trading Video Tutorials Here

7. Practice makes perfect. In the investment business, paper trading is how we all start. Pick a couple of companies, make a note of their price, the date, the reason why you want to buy them and then start following the stock.

As time passes, the hunch or assessment which made the stock such a great prospect will play out. Was it a good or bad decision? Would buying the stock 'for real' have made a profit or a loss?

Click here to read our stock market blog

This is an excellent learning experience and one that is vital to the long-term profitability of anyone in the stock market. To get the real experience, purchase some graph paper and chart the stock price movements each day by hand. Learn to compare this with the overall movements of the market and a whole new world of investment and money will begin to open up to you!

For an even broader look at this topic, please also read the following article about the Stock Market For Beginners

Will The Dow Jones Crash?

Managing Your Money

From: Bankers Australia

No matter what your financial situation, being good with money is a core life skill. Whether you have a little or a lot, there are some basic practices that can help you manage your money.

Bank account basics

Banks offer all sorts of financial products and services to customers. When you are shopping around for a banking account, sometimes the range and complexity of choices can be overwhelming. Maybe you've just got you first full-time job and need an account to help you manage you pay. Maybe you’re juggling work and study and need to keep a close eye on your money if you’re saving for that car. Whatever your circumstances, it’s time to get smart about your banking.

Making the right choice about your bank account is the first step towards smart banking. The information below can assist you choose a bank account which best suits your needs and to help you cut down on fees in order to get the most from your account.

To read more information there are some resources below which may be of assistance.

Handy booklet:

“Smarter Banking – Make the Most of Your Money”

Fact Sheets:

Affordability of banking

Fee free and low cost banking

Bank service fees

New ways of banking

Credit basics

Borrowed money or credit is used by most bank customers because it’s convenient and it helps us achieve our financial goals, when it’s carefully managed. The information below is for anyone who is thinking about borrowing money, or already has some form of credit, such as a personal loan, an overdraft or a credit card. It provides the basic facts about credit – from the potential benefits and pitfalls of different types of credit, including the cost of credit, through to helpful tips on keeping credit under control and what to do when credit becomes a problem.

To read more information there are some resources below which may be of assistance.

Handy booklets:

“Smarter Banking - Make Credit Work for You”

“Smarter Money - Take Control and Stay on Top of Your Finances”

Fact sheets:

Another day, another bill to pay

Borrowing Money - Managing and Obtaining Credit

Bank fees

Banks charge fees for the service they provide to the customer and this is predominantly based on a user pays principle. That is, customers pay a reasonable fee for the cost of the services they use.

Although it might not be obvious, a bank incurs a cost for every service a customer uses, even if it is only checking an account balance. Most customers agree it is fair to pay fees, but only if they receive value in return. In return for service fees, customers know their money is safe and secure and that their bank will provide and maintain facilities which give them convenient access to that money, 24 hours a day, seven days week, from almost anywhere in the world.

To read more information there are some resources below which may be of assistance.

Handy Booklets:

“Smarter Banking – Make the Most of Your Money”

“Smarter Money - Take Control and Stay on Top of Your Finances”

Fact sheets:

Affordability of banking

Fee free and low cost banking

Bank service fees

New ways of banking

Budgeting basics

Budgeting is the process of balancing income and expenses so that you can manage your finances for a defined period. Doing a budget is simply a matter of noting down all of your income and all of your expenses, then subtracting your expenses from your income to see what you have left. This is your ‘disposable income’.

Budgets are often thought of as something necessary for individuals or families on modest incomes or for those paying off debt. However, everyone can benefit from a budget, even the most affluent. A budget can show if you are living beyond your means or spending more than you are earning. You can use a budget as a tool to help you save for a financial goal like a car or an overseas trip.

Some people think doing a budget is daunting … the ABA has a number of fact sheets, including Budgeting Made Easy and our Handy Budget Planner to assist you take the first step, and the second step to being a better money manager.

To read more information there are some resources below which may be of assistance.

Handy Booklet:

“Smarter Money - Take Control and Stay on Top of Your Finances”

Fact sheets:

Budgeting Made Easy

Handy Budget Planner

Single trader sparked Wall Street's flash crash

From: The Sydney Morning Herald

October 2, 2010

 

A computer-driven sale worth $US4.1 billion ($4.24 billion) by a single trader helped trigger the May flash crash, which sent the Dow Jones Industrial Average dropping nearly 1000 points in less than a half-hour and set off liquidity crises that ricocheted between US futures and stock markets.

A report issued on Friday by the US Securities and Exchange Commission and the Commodity Futures Trading Commission determined the plunge was caused when the trading firm executed a computerised selling program in an already stressed market.

The report did not identify the trader by name, but internal documents obtained from futures exchange operator CME Group identified that trader as money manager Waddell & Reed Financial.

The long-awaited report focused on the relationship between two hugely popular securities - E-Mini Standard & Poor's 500 futures and S&P 500 "SPDR" exchange-traded funds - and detailed how high-frequency algorithmic trading can sap liquidity and rock the marketplace.

"The interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets," the report said.

The "flash crash" sent the Dow Jones Andustrial Average plunging within minutes, exposing flaws in the electronic marketplace dominated by high-speed trading.

The report lays the foundation for a commission to recommend new rules to avoid a repeat. At least one lawmaker threatened congressional action if regulators did not address the disparity in the markets.

Trading was turbulent that afternoon because of concerns over the European debt crisis. Against that backdrop, a "large fundamental trader" initiated a sell program to sell 75,000 E-Mini contracts as a hedge to an existing equity position, according to the 104-page report.

Citing documents from CME Group, Reuters reported on May 14 that Waddell sold a large order of E-Minis during the market plunge, identifying the firm to which the chairman of the Commodity Futures Trading Commission, Gary Gensler, had alluded in congressional testimony.

The CFTC had resisted naming Waddell in Friday's report because of laws that allow it to withhold such information from the public, sources have said.

Waddell's selling algorithm had "no regard to price or time," the report said. That, coupled with the "aggressive" reaction by high-frequency traders hedging their positions, led to two separate "liquidity crises" -- one in the E-minis, the other among individual stocks.

Waddell's algo "responded to the increased volume by increasing the rate at which it was feeding the orders into the market, even though orders that it already had sent to the market were arguably not yet fully absorbed by fundamental buyers or cross-market arbitrageurs," the report said.

These arbitrageurs transferred the selling pressure to the stock market, sparking a "hot-potato" effect among high-frequency traders that rapidly passed the same positions back and forth.

Meanwhile, the report continued, the stock market began plunging as trading pauses kicked in at individual firms, as high-frequency traders became net sellers, and as market makers began routing "most, if not all," retail orders to the public markets -- a flood of unusual selling pressure that sucked up more dwindling liquidity.

Shares of Waddell edged higher on Friday. They fell sharply on the day of the initial Reuters report.

The unprecedented flash crash called into question many of the regulatory and technological changes over the last decade, which ushered in an era of lightning-quick trading on dozens of mostly electronic exchanges and alternative venues.

Data to the beginning of this month show that funds have exited mutual funds in every week since early May. Meanwhile, the 20-day moving average of the S&P 500's daily volume shows a slow decline since late May, according to Reuters data.

"I do not expect today's report to restore the confidence that was lost as a result of the flash crash," said David Joy, Minneapolis-based chief market strategist at Columbia Management, a large money manager.

"Most individual investors do not fully understand how high-frequency trading works, only that it can create volatility and seems to put them at a disadvantage. Only time, and higher stock prices, will restore that lost confidence."

The SEC, under enormous political and public pressure to act, in the last few months adopted new trading curbs known as circuit breakers and proposed establishing a consolidated audit trail of all stock trading.

Lawmakers seized on the latest report as a reason for the SEC to do more to fix the fragmented markets.

"The SEC should seriously consider ways to slow things down when markets get volatile," said Democratic Senator Charles Schumer.

Democratic Representative Paul Kanjorski said regulators must act quickly to revise market rules.

If necessary, Congress must "put in place new rules of the road to ensure the fair, orderly and efficient functioning of the US capital markets," Kanjorski said.

The flash crash report comes just as the SEC and the CFTC have begun drafting nearly 200 rules required by the landmark Wall Street reform legislation, which includes a revamp of the opaque over-the-counter derivatives market.

Latest Merket News

From: News - From All Angles

SKYPE announced an agreement on Wednesday with US corporate telephone provider Avaya to bring the internet communications service to US business customers.

A technology blog, the Dow Jones-owned AllThingsDigital, reported meanwhile that Luxembourg-based Skype was also set to announce a partnership with Facebook that would integrate Skype services into the social network.

Skype and Avaya, a provider of enterprise communications systems, software and services based in Basking Ridge, New Jersey said their agreement calls for the delivery of low-cost communications to business clients.

Avaya customers in the United States will have access to Skype Connect, allowing them to save on international calls.

Skype, which was founded in 2003, bypasses the standard telephone network by channelling voice, video and text conversations over the internet.

Avaya and Skype said that in the second half of 2011, they will deliver integrated solutions that will allow instant messaging, voice and video communications between their respective users.

"Our relationship with Avaya is expected to expand the footprint for Skype Connect into more enterprises in the US market, while allowing us to help Avaya's customers benefit from Skype's cost savings and access to Skype's global user base," Skype vice president David Gurle said.

"We believe our integrated solution in the second half of 2011 is expected to offer the benefits of Skype to a growing number of businesses and open up new ways for people to communicate and collaborate."

AllThingsDigital said the Facebook and Skype partnership would see the integration of Skype SMS messaging and voice chat into the social network, which has more than 500 million members worldwide.

Contacted by AFP, a Facebook spokesman said: "We work with a lot of companies on Facebook integrations, but have nothing to announce with regards to Skype at this time."

Skype also declined to comment on any potential agreement with Facebook.

In August, the communications firm announced plans to raise up to $US100 million in shares by listing on the NASDAQ stock exchange.

The Stock Market For Beginners: 7 Starter Tips

Other pages in this 'Stock Market For Beginners' section of the site look at the kinds of things that a new investor should do to help themselves. However, these were written in essay format and so for some time it has been on the 'to do list' to make a list and simplify the stock market for beginners tips. 

Here we go...

1. Investing is not a hobby. To big merchant banks, it is a very competitive business. Therefore, you should also treat it as a business. That means understanding your own profit and loss as well as the companies in which investments are made.

Once this thought pattern is established, it makes the whole process so much easier. Simply ask, "Will this investment / trade / software / subscription make or lose me money?" Once an answer has been established, a clear course of action will present itself.

2. Get some great investment management software. These days, a speedy internet connection and good money management and investment software costs virtually nothing. Why spend the time and effort trying to figure out the best ways to do things when solutions already exist.

Ideally, look to purchase two types of software. One will be for personal money management. This can be used for profit and loss and keeping track of the costs of subscriptions, stockbrokers and the like. The other will be used for tracking stock and fund prices, storing company news, technical and fundamental analysis and more.

Click Here To Watch Free Trading Videos

3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help.

4. Learn about money management. Every investor will have the occassional (at best) loser and it is vital that no individual holding can wipe out a portfolio. Understanding asset allocation is vital.

Years of talking to people about investments has taught me that there are fundamental differences between the way investors behave. New investors ask for 'a tip' and want to know, "What should I buy?".

In contrast, professionals do not want tips. They have dozens of good ideas of their own. They won't be sharing those ideas with you and they will not be expecting you to share yours. Instead, they ask about how you allocate money. "Which sectors and markets do you like and why?" The difference between these approaches is like night and day.

5. Read widely. Getting a wide ranging education in personal finance, corporate finance, taxation, economics and investment theories will help. However, finding areas of the world or business in which you can become relatively expert can help in the process of finding investments.

The reality is that in the modern world - especially with the power of the internet - there is very little information that is not in the public domain somewhere. However, the world now has information overload. Whilst the information might be available, few people now have the time to find or understand it. The people who know these things and can 'join the dots' have regular opportunities for stock market investment.

Once the basics have been covered and understood, it may be that just one or two hours of reading each week will be enough to keep knowledge up to date. But keeping up to date is vital.

6. Find a good investment service to subscribe to. Many of the suggestions above can now be covered by joining just one stock market service. These services now aim to pick stocks, offer trading and portfolio management software and educational services too. If things go well, then by investing in the stock market picks, the service can be paid for with profits.

Though these services are often not 'cheap' they are generally very valuable and can help to make an investor or trader profitable whilst learning the ropes. This is a great way to learn or experience the stock market for beginners.

Watch Free Stock Trading Video Tutorials Here

7. Practice makes perfect. In the investment business, paper trading is how we all start. Pick a couple of companies, make a note of their price, the date, the reason why you want to buy them and then start following the stock.

As time passes, the hunch or assessment which made the stock such a great prospect will play out. Was it a good or bad decision? Would buying the stock 'for real' have made a profit or a loss?

From: Stock Exchange Secrets

Warren Buffett's Cartoon The Secret Millionaire's Club

The Stock Market - A Beginner's Guide

How the stock market works. 

The stock market is driven by supply and demand. The number of shares of stock dictates the supply and the number of shares that investors want to buy dictates the demand.  It's important to understand the for every share that is purchased, there is someone on the other end selling that share (or vice versa).  The stock market is really just a big, automated superstore where everyone goes to buy and sell their stock.  The main players in the stock market are the exchanges.  Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set the price of the shares.  The primary exchanges are the Nasdaq, the New York Stock Exchange (NYSE), all of the ECNs (electronic communication networks) and a few other regional exchanges like the American Stock Exchange and the Pacific Stock Exchange.  Years ago, all of the trading was done through the traditional exchanges (like the NYSE, American and Pacific Exchanges) but now almost all of the trading is done through the Nasdaq, which uses ECNs and thousands of other firms with access to the Nasdaq to facilitate trading.

Here's an example of one of the many ways that the stock market works:

You open an account with E*Trade.  You send E*Trade a check for $1,000.  E*Trade deposits the check into a trading account that is listed under your name.  You log onto E*Trade and place an order to buy 100 shares of a stock in Company A, which is currently trading at $5.  E*Trade uses it's network to tell the Nasdaq and all of it's related networks that there is demand for 100 shares of Company A's stock.  The Nasdaq finds someone who is willing to sell 100 shares of Company A and, instantaneously, they execute the trading of stock between you and the person selling the shares.  The trade information is sent to a clearinghouse where the information is processed and the shares will now be registered to you.  Basically, the clearinghouse will designate 100 shares of Company A to E*Trade and E*Trade will designate those 100 shares as yours.  The actual stock certificates are typically held "in street name" and never really need to exchange hands (although you could request that the stock certificates be transferred to your name).

In a nutshell, that's how the stock market works.  The stock market is really just like any other marketplace - it facilitates the exchange of goods between interested parties and works to reduce distribution costs and set prices.

How stocks are valued. 

Stocks have two types of valuations.  One is a value created using some type of cash flow, sales or fundamental earnings analysis. The other value is dictated by how much an investor is willing to pay for a particular share of stock and by how much other investors are willing to sell a stock for (in other words, by supply and demand). Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks.  Let me discuss both types of valuations.

First, the fundamental valuation.  This is the valuation that people use to justify stock prices.  The most common example of this type of valuation methodology is P/E ratio, which stands for Price to Earnings Ratio.  This form of valuation is based on historic ratios and statistics and aims to assign value to a stock based on measurable attributes.  This form of valuation is typically what drives long-term stock prices.

The other way stocks are valued is based on supply and demand.  The more people that want to buy the stock, the higher its price will be.  And conversely, the more people that want to sell the stock, the lower the price will be.  This form of valuation is very hard to understand or predict, and is often drives the short-term stock market trends.

Why the stock market is a good investment (in the long term). 

It’s all about risk and return, and because your money is at more risk in the stock market than if you park it in a savings or CD (by the way, the money you invest in a CD is probably reinvested by the company offering the CD), the potential return is higher. It’s true that the gyrations in the stock market can cause both large losses and large gains, but if your investment time horizon is long enough, these short-term fluctuations will result in relatively high returns. It is generally accepted, that the average long term return from investing in stocks  is 10-12%. This is much higher than the average CD or savings rate of 4-6%.

Why the stock market gets out of whack with reality. 

Over the long term, the stock market is driven by underlying economic, financial and global growth. But in the short run, the market is driven by simple greed and fear, which are dictated by human emotions.  During periods of prosperity, the stock market often rises faster than underlying earnings.  During tough economic times, political uncertainty, and low consumer confidence, the stock market often performs worse than the underlying fundamentals predict.

Recommend ways to invest in the stock market.

• Don’t try to time the market.  As tempting as it is to try, it is not possible to time the stock market.  People have written millions of pages of research on this topic and NO ONE has ever found a legitimate way to determine its trends.
• Use cost averaging.  By buying stocks on a periodic basis (like once a paycheck, once a month or even once a year), you will always be buying at an average price.  If you try to time the market, you may be buying at a high or low valuation.
• Take taxes into account.  When you buy stocks, try to hold them for more than one year so you get taxed at the long term capital gains rate, which is currently 18%.  If you sell your stock before one year, you will be taxed at your ordinary income tax rate, which is almost always higher than 18%, sometimes twice as high.
• Invest as much as possible into tax-sheltered 401K, 403B and IRAs.  By investing in tax deferred plans, you are able to invest money and not worry about the tax implications.  With 401K and 403B plans, you get to invest your earnings before taxes, so the investment will grow on a higher base.  For example, if you received a paycheck for $2,000 gross pay and taxes were taken out, you'd be left with only $1,200 or so to invest.  The investment return on $1,200 could be substantial, but if you could invest that same $2,000 in a tax deferred account, you would be investing and earning a return on $2,000 instead of $1,200.  Also, many employers offer matching investments that could make that $2,000 investment equivalent to a $4,000 investment.  Put as much as you can into these tax deferred investments.
• Diversify your investments.   Don't just invest in stocks.  It is better if you diversify your investments into other asset classes including real estate (a house), cash (savings account or CD) and maybe even bonds.  That way, if one asset class really underperforms, you will have some exposure to the better performing assets.
• Diversify your stocks (mutual funds).  When investing in the stock market, don't load up on just one or two stocks.  Diversify your investments across many stocks. If your portfolio is not large enough to buy 15 or more different stocks, you should consider purchasing one or more mutual funds to ensure diversification.

From: Free Financial Advice

1929 Wall Street Stock Market Crash

Stock Market Hopes: 2010

Wednesday June 17, 2009

With unemployment on the rise as companies shed staff to cope with decreases demand due to the global financial crisis, 2009 has so far been steadfast but expectantly slow in terms of investing in the stock market. This website proves that you can make money in any market with the right trading tools, but for much of Australia, a true market recovery is what many investors are banking on.

While Australia has so far avoided a technical recession and shown great resilience compared to many other nations feeling the effects of the crisis, the downturn has been felt at home as well as abroad. In many cases, speculators from around the world have suggested mid 2010 will be the magic time for true stock market recovery, and the latest report from Westpac echoes this sentiment.

The Westpac Melbourne Institute Leading Index indicated forecast positive growth in 2010, especially after recent positive activity on the market. Westpac has predicted a growth rate of one percent after expected contractions in June and September quarters. The important indicator suggests good news for the stock market and investors looking to capitalise on the current value of shares.

From "Stock Market"

The Definition of Penny Stocks

Low-priced stocks of small companies that usually carry a value of less than $5 are called penny stocks. These type of stocks are traded on the Over-the-Counter-Bulletin-Board (OTCBB) and the Pink Sheets. Both of the mentioned trading venues do not have the same kind of minimum requirements of exchanges as those which are set by the Securities and Exchange Commission for the NASDAQ or the NYSE. Penny stocks are issued by those companies that are either starting businesses or approaching bankruptcy. A new issue of stocks is one way of injecting quick capital that can be used to save the business.

Lack of standards, lack of stability, and decrease of prices are some of the factors that cause penny stocks to be one of the riskiest investments around. Although successful companies experience a great payoff, a vast majority of penny stocks often end in bankruptcy. Here are some of the reasons why penny stocks are considered to be risky:

Lack of information about the company
Most companies have very little reportable history and those which are listed in the Pink Sheets or in the OTCBB aren’t required to issue financial statements.

Low liquidity
Finding potential buyers is difficult because penny stocks are infrequently traded. In order to interest an investor to buy the stock, the price of the penny stocks need to be lowered substantially.

Potential fraud.
Penny stocks, as a result of their unregulated nature, are often sold by con artists through spam emails or off-shore brokers.

Not all penny stocks are issued to gain money by fraud or to deal with bankruptcy. There are some penny stocks which are used to represent hard-working businesses that are struggling to meet the necessary requirements to get listed on NYSE of NASDAQ. Investing in such companies offers real growth potential because investors have the opportunity to get in at the ground floor and ride all the way to the top.

Finding companies with this growth potential is difficult. A lot of research is needed to get this information. Unless they willingly take the time to personally investigate a company, investors could be victimized by fraud. Nowadays, there are some companies that offer “inside information” about which companies sell penny stocks. Investors always have to be extra careful since there are other companies which only serve as fronts for pushing particular stocks on unsuspecting investors.

The two ways to play the penny stocks are to do research and to play craps. Since the stocks come with low costs, investors will not lose vast amounts of money in case the company goes under. Penny stocks are also considered to be interesting additions to any portfolio. It must be stressed, however, that only a small portion of any portfolio should consist of penny stocks because the odds are that most penny stocks will end up in a total loss.

Investors who are interested in buying penny stocks need to find a broker that will place orders for them. Although a lot of brokers will not cover penny stocks due to the difficulty in tracking them, there are some online brokers who specialize in penny stocks. Regulations require brokers to receive a written confirmation from their clients concerning the transactions. Brokers are also required to provide their clients with a document that outlines the risks of speculating with penny stocks.

The current market price of the stock and the compensation amount of the firm has to be disclosed by the broker. They also have to provide their clients with monthly statements that detail the market value of each penny stock in the account.

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How the markets really work

How the Stock Market Works

Stock Market Tutorial #1 Financial Basics

Watch the rest of the Tutorials here.

The Stock Market for Beginners

From Stock Trading Info

The Stock Market For Beginners can seem like a place to make some easy money fast. You often here in the news how a stock went up four points, and say to yourself, if I had gotten in on that one I could have made a killing. Fast easy money is far from the truth when it comes to the stock market. But you can make money in the stock market. Slow and easy is the way to go, and if you start at an early age, a fast and easy retirement is a reality.

Beginners at stock trading should take the time to get the education they need in order to succeed. You do not see a surgeon pick up a knife and become good at surgery overnight. It takes time and knowledge to be good at anything in life. To begin with, make sure you understand How The Stock Market Works. Start with the basics and work your way up. You did not pick up a book one day and start to read, first you learned the letters of the alphabet.

Decide how you are going to trade. Making this decision is going to tell you what you need to be reading to learn about it. Are you going to scalp, day trade, swing trade, or buy and hold for the long run. Scalping involves buying large quantities of shares in a stock, and you are just looking for a small move in the stock price. Day trading is similar to scalping but you are looking for bigger moves in the price, and you do not hold the stock overnight. Swing trading is when you buy a stock and hold it for a short period of time looking for a substantial move in the price. Buy and hold is when you plan on holding on to the stock for a long time. You believe the company is going to grow in value and the price is going to go much higher.

Next you will need to understand what fundamental analysis and technical analysis is:

• Fundamental Analysis relies on economic supply and demand information, such as a stocks annual growth rate, and quarterly earnings. This can be very time consuming reading each company's financial reports. There is a paper called Investor’s Business Daily to help with this. If you are going to be trading in the markets you should not be with out this paper.
• 
  
  Technical Analysis is the study of time, price, and sentiment. The tool used for this is charts. Charts show a stocks price history, and with practice we can see everything we need to know about a stock, just by looking at the chart. Click here for more information about Reading and Understanding Charts

The next thing you are going to need is a Stock Trading System. When you go on a vacation you do not just jump in the car and go. You look at a map, decide when you are going to leave, when you are going to start to head home etc. The same is true with the stock market. Many beginners jump in without a plan, you must have a plan in place, why and when you are going to enter the trade, when you are going to get out, and you must stick to the plan. Practice trading on paper before you open an account to see how well you are doing. Once you are doing good on paper then it is time for the real deal.

- Source vss2000 -

Welcome to Australian Stock Exchange

From Australian Stock Exchange Info

The Australian Stock Exchange (ASX) is the main stock exchange in Australia.Other mirror exchanges exist but they simply mirror the Australian  Exchange. The  Stock Exchange started off as individual exchanges in different states which were established as far back as 1871.

Trading on the stock exchange is all electronic not like in days gone by where it was all manual and left up to humans. The system responsible for was  called SEATS but has since been taken over by a new, far superior electronic system capable of many more transactions per second called ITS which stands for Intergrated Trading System.

The current Managing Director of the Australian Securities Exchange is Robert Elstone who was appinted in 2006.

There are four major index's which are regularly quoted and these include the All Ordinaries, The Top 200 (list of the top 200 stocks),the Top 100 (list of the top 100 stocks and the ASX 50 which contains the top 50 stocks.The most common  indices which we often here on the news are the Top 200 and the All Ords. They are still watched by investors as the bench mark indices and are an indication of where the market is traveling. The Australian Securities Exchange is a public company and is listed on it's own Exchange. Every stock listed is assigned a three letter code.

The current market capitalisation is believed to be about 1 trillion dollars with approx 2200 listed companies to date.

The Stock Exchange trades approx 500 000 trades a day.

The mining stocks make up a very large portion of the index especially with the recent Mining resource boom.Some of the biggest stocks traded that make up the index include,Rio Tinto, BHP Billiton, National Australia Bank and Telstra.

There are many rules regarding listing on the Australian Securities Exchange but this can be a great way for companies to expand and get new funds into their coffers.

For ASX Share Prices please go to our share prices page.

Pictures of Kuwait Stock Market Exchange

(Source: Kuwait Stock Exchange on Flickr)

HUGE VOLUMES

Why Can’t People Make Money in Stock Market

SET And Thailand Stock Market

Stock Market Investing

U.S. stocks slide at the open

THE BEST STOCK MARKET GAME - FREE ONLINE

The stock market is way down and this has prompted a lot of people who know nothing about stocks to want to learn about the market and get involved. They are thinking this might end up being an investment opportunity of a lifetime but they don't know where to go to learn about stocks.

Now there is a fantasy stock trading game for all those who want to get involved and learn the ropes and terminology without the risk. Wall Street Survivor is the best stock trading simulation game out there and the good news is that it is absolutely FREE! This game and site is meant for beginners and people who want to learn about the stock market and how to trade online.

I signed up (takes less than a minute) to see what it was all about and let me tell you , there is a lot going on at this stock simulator game including weekly and monthly contests where you can win prizes. First of all, you make buy and sell stock trades just like you would on any other real stock site platform. So, when you learn how to make the trades at Wall Street Survivor, you have learned how you would do it at a real online broker for real money.

The amount of material that is available for FREE is amazing. They have training videos, tutorials, a massive forum, contests which everybody is automatically entered in, a research section, and much more. Once you sign up you will quickly realize there is no shortage of things to do on Wall Street Survivor and things to learn.

Initially, you are given $100,000 to start out in virtual cash which you use to build up your very own stock portfolio. You can buy and sell stock (with your fantasy dollars) at the real prices of the stocks as they go up and down during the day. Just like in real life, you can learn how to short sell, set stop limit orders, put in orders after hours and just about anything you can do at a real online broker you can do here. You will be managing your very own stock portfolio through simulated trades that are executed on a real-time stock trading platform. As you can see below I am up a little from my starting amount of $100,000.

Wall Street Survivor is a very cool FREE site where you can learn how to invest and manage your own stock portfolio without any of the risk. So, once you feel comfortable with how the market works and how to do some research, you can sign up with a real online broker and jump right in. If you want to know what the market is like and what it would be like to have your very own portfolio of stocks that you can trade, this free stock simulation game is a no brainer. Sign up for Wall Street Survivor today and give it a spin.

From  STOCK MARKET FOR DUMMIES / STOCK MARKET FOR BEGINNERS

HK Dollar Up Late For 2nd Straight Day On Stock Market Rise

JULY 23, 2010, 4:47 A.M. ET

Latest Change USD/HKD Spot 7.7734 -0.0028 1-year USD/HKD Forward* -195 +3 Overnight Hibor 0.02% -4 bps 1-month Hibor 0.23% -3 bps 3-month Hibor 0.36% +2 bps 1-year Hibor 0.80% Unchanged 2-year EF Note 0.50% +1 bps 10-year EF Note 2.22% Unchanged *mid-point of bid-offer spread 

HONG KONG (Dow Jones)--The Hong Kong dollar rose against the U.S. dollar Friday for the second consecutive session as gains in the local stock market boosted demand for the Hong Kong currency. Traders said the U.S. dollar is likely to gain broad support offshore if the results of stress tests on European banks scheduled to be disclosed late Friday are negative. They said they expect the U.S. dollar to be well-supported at HK7.7700 next week, with psychological resistance at HK$7.7800.

In late Asian trade, the U.S. dollar was at HK$7.7734, down from HK$7.7762 late Thursday. The U.S. unit was fixed at HK$7.7743 earlier Friday.

"With investors not eager to bid ahead of the release of the stress tests on European banks, the rise in Hong Kong equities become the key driver," said a trader at a U.K. bank.

The blue-chip Hang Seng Index rose 1.1% to 20,815.33 following a rally on Wall Street overnight.

European governments have agreed to issue Friday the results of stress tests on 91 banks accounting for 65% of Europe's banking sector in the hope that it will reassure markets worried about their exposure to the continent's debt crisis.

Morgan Stanley currency strategist Calvin Tse said he is bullish on the U.S. dollar in the week ahead because of Federal Reserve Chairman Ben Bernanke's testimony to Congress this week.

"Bernanke's recent characterization of the economy has certainly not helped investor sentiment towards the U.S. The U.S. dollar should benefit as investors flock towards the safety of U.S. dollar-denominated assets," Tse said in a report Friday.

Bernanke said Wednesday in his semiannual monetary policy testimony to the Senate Banking Committee that the U.S. economic outlook is "unusually uncertain."

The one-year U.S. dollar/Hong Kong dollar forward contract was quoted at a discount of 195 points to the spot rate, narrowing slightly from a 198-point discount late Thursday.

Under Hong Kong's currency board system, the Hong Kong dollar is allowed to trade between HK$7.75 and HK$7.85 to the U.S. dollar.

-By Chester Yung, Dow Jones Newswires; 852-2832 2331; chester.yung@dowjones.com

SA Upload - Stock market crash

 

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Can the government control a stock market crash?

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Panicked New Yorkers flood Wall Street during the stock market crash on Oct. 29, 1929. See more recession pictures.

2008 Stock Market Crash

Stock market crash

From Wikipedia, the free encyclopedia

 

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.

Stock market crashes are social phenomena where external economic events combine with crowd behavior and psychology in a positive feedback loop where selling by some market participants drives more market participants to sell. Generally speaking, crashes usually occur under the following conditions: a prolonged period of rising stock prices and excessive economic optimism , a market where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by market participants.

There is no numerically specific definition of a stock market crash but the term commonly applies to steep double-digit percentage losses in a stock market index over a period of several days. Crashes are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are periods of declining stock market prices that are measured in months or years. While crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash of 1987 for example did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over several years without any notable crashes.

Wall Street Crash of 1929

Crowd gathering on Wall Street after the 1929 crash.

The economy had been growing robustly for most of the so-called Roaring Twenties. It was a technological golden age as innovations such as radio, automobiles, aviation, telephone and the power grid were deployed and adopted. Companies who had pioneered these advances, like Radio Corporation of America (RCA) and General Motors, saw their stocks soar. Financial corporations also did well as Wall Street bankers floated mutual fund companies (then known as investment trusts) like the Goldman Sachs Trading Corporation. Investors were infatuated with the returns available in the stock market especially with the use of leverage through margin debt. On August 24, 1921, the Dow Jones Industrial Average stood at a value of 63.9. By September 3, 1929, it had risen more than sixfold, touching 381.2. It would not regain this level for another twenty five years. By the summer of 1929, it was clear that the economy was contracting and the stock market went through a series of unsettling price declines. These declines fed investor anxiety and events soon came to a head on October 24 (known as Black Thursday) and October 29 (known as Black Tuesday).

On Black Tuesday, the Dow Jones Industrial Average fell 38 points to 260, a drop of 12.8%. The deluge of selling overwhelmed the ticker tape system that normally gave investors the current prices of their shares. Telephone lines and telegraphs were clogged and were unable to cope. This information vacuum only led to more fear and panic. The technology of the New Era, much celebrated by investors previously, now served to deepen their suffering.

Black Tuesday was a day of chaos. Forced to liquidate their stocks because of margin calls, overextended investors flooded the exchange with sell orders. The glamour stocks of the age saw their values plummet. Across the two days, the Dow Jones Industrial Average fell 23%.

By the end of the week of November 11, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months but it would be a false recovery that led unsuspecting investors into the worst economic crisis of modern times. The Dow Jones Industrial Average would lose 89% of its value before finally bottoming out in July 1932.

October 19, 1987

DJIA (19 July 1987 through 19 January 1988).

The mid-1980s were a time of strong economic optimism. From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) grew from 776 to 2722. The rise in market indices for the 19 largest markets in the world averaged 296 percent during this period. The average number of shares traded on the NYSE had risen from 65 million shares to 181 million shares.

The crash on October 19, 1987, a date that is also known as Black Monday, was the climactic culmination of a market decline that had begun five days before on October 14. The DJIA fell 3.81 percent on October 14, followed by another 4.60 percent drop on Friday, October 16. On Black Monday, the Dow Jones Industrials Average plummeted 508 points, losing 22.6% of its value in one day. The S&P 500 dropped 20.4%, falling from 282.7 to 225.06. The NASDAQ Composite lost only 11.3%, not because of restraint on the part of sellers, but because the NASDAQ market system failed. Deluged with sell orders, many stocks on the NYSE faced trading halts and delays. Of the 2,257 NYSE-listed stocks, there were 195 trading delays and halts during the day. The NASDAQ market fared much worse. Because of its reliance on a "market making" system that allowed market makers to withdraw from trading, liquidity in NASDAQ stocks dried up. Trading in many stocks encountered a pathological condition where the bid price for a stock exceeded the ask price. These "locked" conditions severely curtailed trading. On October 19, trading in Microsoft shares on the NASDAQ lasted a total of 54 minutes.

The Crash was the greatest single-day loss that Wall Street had ever suffered in continuous trading up to that point. Between the start of trading on October 14 to the close on October 19, the DJIA lost 760 points, a decline of over 31 percent.

The 1987 Crash was a worldwide phenomenon. The FTSE 100 Index lost 10.8% on that Monday and a further 12.2% the following day. In the month of October, all major world markets declined substantially. The least affected was Austria (a fall of 11.4%) while the most affected was Hong Kong with a drop of 45.8%. Out of 23 major industrial countries, 19 had a decline greater than 20%.

Despite fears of a repeat of the 1930s Depression, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September 1989, the market had regained all of the value it had lost in the 1987 crash. The Dow Jones Industrial Average gained six-tenths of a percent during the calendar year 1987.

No definitive conclusions have been reached on the reasons behind the 1987 Crash. Stocks had been in a multi-year bull run and market P/E ratios in the U.S. were above the post-war average. The S&P 500 was trading at 23 times earnings, a postwar high and well above the average of 14.5 times earnings. Herd behavior and psychological feedback loops play a critical part in all stock market crashes but analysts have also tried to look for external triggering events. Aside from the general worries of stock market overvaluation, blame for the collapse has been apportioned to such factors as program trading, portfolio insurance and derivatives, and prior news of worsening economic indicators (i.e. a large U.S. merchandise trade deficit and a falling U.S. dollar, which seemed to imply future interest rate hikes).

One of the consequences of the 1987 Crash was the introduction of the circuit breaker or trading curb on the NYSE. Based upon the idea that a cooling off period would help dissipate investor panic, these mandatory market shutdowns are triggered whenever a large pre-defined market decline occurs during the trading day.

The Crash of 2008

The collapse of Lehman Brothers was a symbol of the Crash of 2008

OMX Iceland 15 closing prices during the five trading weeks from September 29, 2008 to October 31, 2008.

On September 16, failures of large financial institutions in the United States, due primarily to exposure of securities of packaged subprime loans and credit default swaps issued to insure these loans and their issuers, rapidly devolved into a global crisis resulting in a number of bank failures in Europe and sharp reductions in the value of equities (stock) and commodities worldwide. The failure of banks in Iceland resulted in a devaluation of the Icelandic Krona and threatened the country with bankruptcy. Iceland was able to secure an emergency loan from the IMF in November. In the United States, 15 banks failed in 2008, while several others were rescued through government intervention or acquisitions by other banks. On October 11, 2008, the head of the International Monetary Fund (IMF) warned that the world financial system was teetering on the "brink of systemic meltdown".

The economic crisis caused countries to temporarily close their markets.

On October 8, the Indonesian stock market halted trading, after a 10% drop in one day.

The Times of London reported that the meltdown was being called the Crash of 2008 and older traders were comparing it with Black Monday in 1987. The fall this week of 21 percent was not as bad as the 28.3 percent fall 21 years ago. But some traders were saying it was worse. “At least then it was a short, sharp, shock on one day. This has been relentless all week.”. Business Week also referred to the crisis as a "stock market crash" or the "Panic of 2008."

The Black Week: Beginning October 6 and lasting all week the Dow Jones Industrial Average closed lower for all 5 sessions. Volume levels were also record breaking. The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. The S&P 500 fell more than 20%. The week also set 3 top ten NYSE Group Volume Records with October 8 at #5, October 9 at #10, and October 10 at #1.

It has been noted that recent daily stock market drops are overall nowhere near the severity experienced during the last stock market crash in 1987. Others have suggested that the media is manipulating and over-inflating stock market drops and calling them "crashes" in order to create the perception of a great depression.

After having been suspended for three successive trading days, i.e. October 9, October 10, and October 13, the Icelandic stock market reopened on 14 October, with the main index, the OMX Iceland 15, closing at 678.4, which corresponds to a plunge of about 77% compared with the closure at 3,004.6 on October 8. This reflects the fact that the value of the three big banks, which form 73.2 percent of the value of the OMX Iceland 15, had been set to zero.

On October 24, many of the world's stock exchanges experienced the worst declines in their history, with drops of around 10% in most indices. In the US, the Dow Jones industrial average fell 3.6%, not falling as much as other markets. Instead, both the US Dollar and Japanese Yen soared against other major currencies, particularly the British Pound and Canadian Dollar, as world investors sought safe havens. Later that day, the deputy governor of the Bank of England, Charles Bean, suggested that "This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."

May 6, 2010 Flash Crash

Commonly referred to as the "Flash Crash", on May 6, 2010, the Dow Jones Industrial Average suddenly dropped almost 1000 points. Starting at 2:43 pm Eastern Time, the DJIA began to sell off at a furious pace with high volume. At 2:48 pm, the DJIA hit a low of 9872.57. Currently (May 7, 2010), there is not a consensus on what caused this unusual and record breaking drop of almost 1000 points on that day. The session was also a record breaking volume day, coming in at the 6th highest trading day with volume of 5,556,775,277 shares. A preliminary report on May 18 to a Joint Advisory Committee of the CFTC and SEC suggests "a failure in liquidity" and stressors of that liquidity as possible causes for the crash.

Trading curbs

Trading curbs, also known as "circuit breakers," are a trading halt in the cash market and the corresponding trading halt in the derivative markets triggered by the halt in the cash market, all of which are affected based on substantial movements in a broad market indicator.

United States

There are three thresholds each of which represents different level of decline in terms of points in Dow Jones industrial average.

In the event where threshold 1 is breached, the first halt is triggered. If that point is reached before 2 p.m., the market would shut down for an hour. If threshold 1 is breached between 2 p.m. and 2:30 p.m., the halt will last 30 minutes. No trading stops will take place if threshold 1 is breached after 2:30 p.m.

If threshold 2 is breached before 1 p.m., the market would close for two hours. If such a decline took place between 1 p.m. and 2 p.m., there would be a one-hour pause. The market would close for the day if stocks sank to that level after 2 p.m.

In the event where threshold 3 is breached, the market would close for the day, regardless of the time.

The thresholds are computed at the beginning of each quarter to establish a specific point value for the quarter.

For the first quarter of 2009, threshold 1 is 850 points, threshold 2 is 1700 points, and threshold 3 is 2600 points.

The rules would halt trading on the major securities and futures exchanges in a coordinated cross-market halt if the circuit breaker is enacted.

France

In France, daily price limits are implemented in cash and derivative markets. Securities traded on the markets are divided into three categories according to the number and volume of daily transactions and price limits vary depending on the category to which the security belongs. For instance, for the more liquid category, when the price movement of a security exceeds 10% from the quoted price at the close of the previous market day, quotation is suspended for 15 minutes. After 15 minutes, transactions are resumed. If the price then goes up or down by more than 5%, transactions are again suspended for 15 minutes. The 5% threshold may apply once more before transactions are halted for the rest of the day. When transactions are suspended in the cash market on a given security, due to undue price movement, transactions on the option based on the underlying security are also suspended. Further, when more than 35% of the capitalization of the CAC­40 Index is unable to be quoted, the calculation of the CAC­40 Index is suspended and the index is replaced by a trend indicator. When less than 25% of the capitalization of the CAC­40 Index is able to be quoted, quotations on the derivative markets are suspended for half an hour or one hour when additional margin deposits are requested.

Mathematical theory and stock market crashes

The mathematical characterisation of stock market movements has been a subject of intense interest. The conventional assumption has been that stock markets behave according to a random Gaussian or "normal" distribution. Among others, mathematician Benoît Mandelbrot suggested as early as 1963 that the statistics prove this assumption incorrect. Mandelbrot observed that large movements in prices (i.e. crashes) are much more common than would be predicted in a normal distribution. Mandelbrot and others suggest that the nature of market moves is generally much better explained using non-linear analysis and concepts of chaos theory. This has been expressed in non-mathematical terms by George Soros in his discussions of what he calls reflexivity of markets and their non-linear movement.. George Soros said in late October 1987, 'Mr. Robert Prechter's reversal proved to be the crack that started the avalanche'.

Research at the Massachusetts Institute of Technology suggests that there is evidence the frequency of stock market crashes follows an inverse cubic power law. This and other studies such as Prof. Didier Sornette's work suggest that stock market crashes are a sign of self-organized criticality in financial markets. In 1963, Mandelbrot proposed that instead of following a strict random walk, stock price variations executed a Lévy flight. A Lévy flight is a random walk that is occasionally disrupted by large movements. In 1995, Rosario Mantegna and Gene Stanley analyzed a million records of the S&P 500 market index, calculating the returns over a five year period.

Researchers continue to study this theory, particularly using computer simulation of crowd behaviour, and the applicability of models to reproduce crash-like phenomena.