Financial markets and trading pdf
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- Financial Markets and Investments
- Fairness in Financial Markets: The Case of High Frequency Trading
- Financial Markets and Investments
Financial Markets and Investments
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds , raw materials and precious metals , which are known in the financial markets as commodities. The term "market" is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e.
Much trading of stocks takes place on an exchange; still, corporate actions merger, spinoff are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, to stock exchanges.
There are also global initiatives such as the United Nations Sustainable Development Goal 10 which has a target to improve regulation and monitoring of global financial markets.
Within the financial sector, the term "financial markets" is often used to refer just to the markets that are used to raise finance. For long term finance, the Capital markets ; for short term finance, the Money markets.
Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in the breakdown below. The capital markets may also be divided into primary markets and secondary markets. Newly formed issued securities are bought or sold in primary markets, such as during initial public offerings.
Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while secondary market transactions exist among investors. Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active secondary market mean that there are many buyers and sellers at a given point in time.
Investors benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount. Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth.
Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding to support expansion known as maturity transformation.
Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks , Investment Banks , and Boutique Investment Banks can help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages.
More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold. The following table illustrates where financial markets fit in the relationship between lenders and borrowers:.
The lender temporarily gives money to somebody else, on the condition of getting back the principal amount together with some interest or profit or charge. Many individuals are not aware that they are lenders, but almost everybody does lend money in many ways.
A person lends money when he or she:. Companies tend to be lenders of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it via short term markets called money markets. Alternatively, such companies may decide to return the cash surplus to their shareholders e. Banks can be lenders themselves as they are able to create new debt money in the form of deposits.
Governments borrow by issuing bonds. In the UK, the government also borrows from individuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed, the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation.
Municipalities and local authorities may borrow in their own name as well as receiving funding from national governments. Public Corporations typically include nationalized industries. These may include the postal services, railway companies and utility companies. Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets.
Borrowers having similar needs can form into a group of borrowers. They can also take an organizational form like Mutual Funds. They can provide mortgage on weight basis. The main advantage is that this lowers the cost of their borrowings. During the s and s, a major growth sector in financial markets was the trade in so called derivatives. In the financial markets, stock prices, share prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk.
Derivative products are financial products that are used to control risk or paradoxically exploit risk. Derivative products or instruments help the issuers to gain an unusual profit from issuing the instruments. For using the help of these products a contract has to be made. Derivative contracts are mainly 4 types: . Seemingly, the most obvious buyers and sellers of currency are importers and exporters of goods.
While this may have been true in the distant past, [ when? Much effort has gone into the study of financial markets and how prices vary with time. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least in the short term.
The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis , which states that the next change is not correlated to the last change. The role of human psychology in price variations also plays a significant factor.
Large amounts of volatility often indicate the presence of strong emotional factors playing into the price. Fear can cause excessive drops in price and greed can create bubbles. In recent years the rise of algorithmic and high-frequency program trading has seen the adoption of momentum, ultra-short term moving average and other similar strategies which are based on technical as opposed to fundamental or theoretical concepts of market behaviour. The scale of changes in price over some unit of time is called the volatility.
Large changes up or down are more likely than what one would calculate using a normal distribution with an estimated standard deviation. Simply put, primary market is the market where the newly started company issued shares to the public for the first time through IPO initial public offering.
Secondary market is the market where the second hand securities are sold security Commodity Markets. With the increase in commodity prices, the cost of goods for companies increases. This increase in commodity prices level causes a rise in inflation. Due to the production cost remaining same, and revenues rising due to high commodity prices , the operating profit revenue minus cost increases, which in turn drives up equity prices.
From Wikipedia, the free encyclopedia. Generic term for all markets in which trading takes place with capital. Government spending Final consumption expenditure Operations Redistribution. Taxation Deficit spending. Economic history. Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals.
Types of banks. Funds transfer. Automated teller machine Bank regulation Loan Mobile banking Money creation Bank secrecy Ethical banking Fractional-reserve banking Full-reserve banking Islamic banking Private banking.
Related topics. Economic systems. Economic theories. Finance capitalism Financial services Financial instrument Financial market efficiency Brownian model of financial markets Investment theory Quantitative behavioral finance Market profile Mathematical finance Stock investor Financial market theory of development Liquidity.
Retrieved Wright and Vincenzo Quadrini. A dictionary of business and management. Oxford University Press. Financial markets. Primary market Secondary market Third market Fourth market. Common stock Golden share Preferred stock Restricted stock Tracking stock. Authorised capital Issued shares Shares outstanding Treasury stock. Electronic communication network List of stock exchanges Trading hours Multilateral trading facility Over-the-counter.
Algorithmic trading Buy and hold Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value averaging Value investing.
General areas of finance. Computational finance Experimental finance Financial economics Financial engineering Financial institutions Financial management Financial markets Financial technology Fintech Investment management Mathematical finance Personal finance Public finance Quantitative behavioral finance Quantum finance Statistical finance. Categories : Financial markets.
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Fairness in Financial Markets: The Case of High Frequency Trading
Effective December 31, , the Board will no longer offer print versions or subscriptions for the Trading and Capital-Markets Activities Manual. You can still access the manual on the Board's website below. The Trading and Capital-Markets Activities Manual provides guidance on trading operations and related capital-markets banking activities. Details sound management practices and key examination and review considerations for trading and capital-markets activities. Includes discussions of a wide range of risk management issues encountered in trading and dealer operations, including market risk, counterparty credit risk, legal risk, financial reporting, accounting, and ethics. Profiles thirty-five specific financial instruments commonly encountered in trading and capital-markets-related activities.
Skip to search form Skip to main content You are currently offline. Some features of the site may not work correctly. DOI: Angel and D. Angel , D. We first examine how high frequency trading is actually used. High frequency traders often implement traditional beneficial strategies such as market making and arbitrage, although computers can also be used for manipulative strategies as well.
Financial Markets and Investments
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A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds , raw materials and precious metals , which are known in the financial markets as commodities. The term "market" is sometimes used for what are more strictly exchanges , organizations that facilitate the trade in financial securities, e. Much trading of stocks takes place on an exchange; still, corporate actions merger, spinoff are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange. Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, to stock exchanges.
In this Section we will review the main features of financial exchanges, derive a simple typology of markets, and classify the trading process on the New York Stock exchange NYSE within this framework. From a purely economic viewpoint there are three basic trading mechanisms, namely Walrasian auction markets, quote driven markets and order driven markets. Unable to display preview.
In this Section we will review the main features of financial exchanges, derive a simple typology of markets, and classify the trading process on the New York Stock exchange NYSE within this framework. From a purely economic viewpoint there are three basic trading mechanisms, namely Walrasian auction markets, quote driven markets and order driven markets. Skip to main content Skip to sections.
Trading and Capital-Markets Activities Manual
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