Thanks to a truly global economy, investing in stocks is a lot more complicated than it was a generation ago.
Of course, the global market has been a reality for many years. However, thanks to consolidation of major stock exchanges (domestic and foreign), stock investors are more challenged than ever to understand or anticipate market movements.
On top of the global exchanges (the New York Stock Exchange is actually controlled by its German partner), super fast electronic markets reduce trading to fractions of a second if you have the right computer, software and connection.
What this means to the average individual stock investor is markets move and prices change at blinding speed.
If used to be prudent to use stop-loss orders to protect your profits in a stock. These standing orders with your broker set a limit on how low the stock price could fall before your shares were sold.
If you set a stop-loss order at $25 per share, when and if the stock hit that price, your order is converted to a market order an immediately executed.
This works fine in normal markets, but when a "flash crash" or some other dramatic event occurs that causes prices to plummet, the price of the stock may fall past your stop-loss level before it can be executed.
When your stock is finally sold, the price may be way lower than your stop-loss number. The result is you may take a big loss you did not expect.
The other big factor is how susceptible U.S. stock markets are to global events. Whether it is trouble in the Middle East, such as what happened in Egypt in early 2011 or the natural disaster that hammered northern Japan in March of 2011, U.S. markets often react dramatically.
Big swings, often more down than up, in U.S. markets can be traced back to Asia, Europe, Africa or other foreign lands.
Most large U.S. companies derive a large percentage of their business from foreign markets. What happens overseas has a direct influence on U.S. corporate giants.
Stock investors will need all the information and skills they can get to master the global stock markets – and even that may not be enough to avoid being blindsided with a dramatic stock move based on and event half-way around the world.
