Home to Chipotle, In-N-Out and many a wonderful outlet malls, it’s hard to ignore the United States, no matter how hard you try. When it comes to the US market you may have heard bits and bobs on the news or read a few headlines online. You’re familiar with Wall Street, and perhaps even watched a movie about a certain wolf in that financial hub.
The US dollar is the most used currency in the world and we live in a time when we are all connected by globalisation. Whether or not you’re looking to invest in it, understanding the US market better is not as difficult as it may seem and can help us understand financial activity over on that side of the Pacific.
Why the US Stock Market?
The US equity market, sometimes called stock market, has grown to be the biggest in the world. If you want to trade equities quickly and easily the US market is a good place to start. Because the US market is so big there are lots of choices of different equities to buy and sell and lots of different people for you to buy and sell with. This characteristic is known as liquidity – you might hear people say the US stock market is very liquid and now you know what they mean.
What to know before buying US equities?
The two biggest US stock markets are:
- NYSE – New York Stock Exchange – the largest, most liquid
- Nasdaq – the next largest
When choosing which equities to buy and sell you will see that the majority of all trading takes place on these stock exchanges. You do not need to worry too much about this detail as you can place your buy and sell orders with your broker and they will take care of the rest.
How The US Stock Market Works
On the NYSE, all trades take place on the trading floor in New York City. The Nasdaq, on the other hand, carries out trades electronically over a telecommunications network. The way the two markets work is different too. The Nasdaq is a dealer’s market. This means market participants are not buying from and selling to one another directly but through a dealer. The NYSE is an auction market. This means individuals are typically buying and selling between one another and there is an auction – this means for each trade the highest bidding (buying) price will be matched with the lowest asking (selling) price.
Getting Started On US Equities
Once you have opened the trading accounts with your broker you will be able to buy and sell US equities by notifying your broker that this is what you want to do. Depending on your broker there can be a small fee and an additional form to fill in the first time but this is simple for the broker to arrange for you. After that, it is just as quick and easy to buy US equities as it is to buy local Singapore equities.
Lot Sizes of US Equities
There is no restriction on lot size for the US stocks. This means you can buy as little as just one share. There are also no restrictions on the price range of order entry.
Major Sectors Of The US Stock Exchange
- The Nasdaq, because of its high-tech nature, attracts firms that are dealing with the internet or electronics. This means that the stocks on this exchange are typically more volatile and focussed on growth. On the other hand, NYSE companies are typically more well- established – including many blue chip firms. NYSE stocks are considered to be more stable and established.
- The NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 are the three biggest US stock indices. The composition of the NASDAQ Composite is heavily weighted towards information technology companies and it trades on the Nasdaq Exchange. The Dow Jones Industrial Average and the S&P 500 trade over both major exchanges. The Dow Jones Index is made up of 30 large publicly owned companies based in the United States. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices and it is a very diverse index covering a broad range of sectors. There is also the NYSE Composite Index which is designed to measure the performance of all common stocks listed on the NYSE, including ADRs, REITs and tracking stocks.
What To Look Out For When Investing In US Shares?
The key difference for you when investing in US equities is the timing. Singapore is 12hours ahead of time of the US. This means when it is 9am is New York it will be 9pm in Singapore. So if you wanted to follow the US equity market through the trading day this would happen during your evening in Singapore time.
Also don’t forget that there are risks involved in equity investing. If the company goes bankrupt, whether US or Singaporean, you risk losing the total amount you invested. When investing in US equities keep in mind that your investment can be affected by US-based factors – such as US political activity. Many investors find this to be an interesting feature to US market investments.
Keeping Track Of Your Equity Portfolio
An important part of investing in the US market is the currency difference. You will be buying and selling equities in US dollars. Your broker will convert your Singapore dollars to US dollars but the rate is constantly changing. Keep a close eye on this exchange rate when making your investment choices – as this can affect how well your investment performs.
Monitor your equity portfolio carefully and you are more likely to achieve higher returns on your investments. By checking all the incoming and outgoing transactions are correct as they take place you can focus more energy on researching your next investment idea – instead of wasting time later chasing up errors.
When putting together your equity portfolio do not put all your money into one single investment – you risk losing all of this if that one company goes bankrupt. It is a better idea to spread your investments over a variety of holdings – this is called diversification and will help you generate a better return on your portfolio.
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