What is a Stockbroker? Quick jump on this page How to Find a Good Stockbroker How Stockbrokers Were Selected Brokerage Terms What is a Stock Trader? About Day Trading The New York Stock Exchange Dow Jones Standard and Poor's NASDAQ Value Investing What is a Shareholder? Initial Public Offering Commodities Negative Amortization Futures Contracts Hedges Investing in Gold A stockbroker sells or buys stock on behalf of a customer.
The stockbroker works as an agent matching up stock buyers and sellers. A transaction on a stock exchange must be made between two members of the exchange — a typical person may not walk into the New York Stock Exchange for exampleand ask to trade stock. Such an exchange must be done through a broker.
Key Characteristics of Successful Stockbrokers | omotohu.web.fc2.com
In addition to actually trading stocks for their clients, stockbrokers may also offer advice to their clients on which stocks, mutual funds, etc. Some newer transaction services online in the form of a website interface. They usually offer low commissions, as low as one or two USD, and fast transaction rates, up to two seconds. Philadelphia was the center of American finance during the first forty years of the new United States.
Inthe country's first stock exchange was founded there and Chestnut Street was home to the nation's most powerful financial institutions. However, in the s a shift to New York City began and for more than one hundred and fifty years Wall Street has been synonymous with the stockbrokerage business.
A number of firms rose to prominence over that time with the top-ranked brokerages in the early s being:. Since the s stockbroking firms have also been allowed to be market makers as long as the appropriate Chinese walls are put in place.
The stockbroker's system performs all the stockbroking functions: Today, most of the once well-known corporate brand names including mid-sized firms such as Smith Barney have been swallowed up by global financial conglomerates.
Discount brokers such as E-Trade, Scottrade, and TD Ameritrade have taken a large share of the business by offering highly discounted commissions, but the companies do not offer investment advice in return--all they do is execute orders. Roles similar to that of a stockbroker include investment advisor, financial advisor, and probably many others.
A stockbroker may or may not be also an investment advisor, and vice versa. Some people prefer to use and pay for the services of a broker because they feel more comfortable making decisions about their finances with the interactive guidance of a licensed professional. Thus your return on investment may not be as great, and the advice they give you might not be in your best interest. However, some mutual funds and stocks can only be purchased through a broker: A word of warning: If you receive a call offering you shares at what seems an unfeasibly good deal e.
These are typically not registered with the FSA and could be in a foreign country where fraud laws are lax. If you suspect that you have been contacted in this way, see Boiler Room for more information. Stockbrokers also sometimes or exclusively trade on their own behalf, as a principal, speculating that a share or other financial instrument will increase or decline in price.
In such cases the term broker makes little sense and the individuals or firms trading in a principal capacity sometimes call themselves dealers, stock traders or simply traders. When acting as a principal, the trade could be with another market participant or one of the stockbroker's clients. When trading in a principal capacity with a client, the broker informs the client and charges the client a markup or markdown from the prevailing market price. Stockbrokers act the same in the UK as in the US, except that when trading in a principal capacity with a client, the broker is obliged to inform the client and no commission is charged.
Other jurisdictions are thought to have similar rules. The term boiler room in business refers to a busy center of activity, often telemarketing or other types of sales. It typically refers to a room where tele-marketers work, often selling stocks, and using unfair, dishonest sales tactics, sometimes selling fraudulent stocks. The term carries a negative connotation, and is often used to imply high-pressure sales tactics and sometimes, poor working conditions.
A boiler room usually has an undisclosed relationship with the company being promoted or undisclosed profit from the sale of the house stock they are promoting.
A boiler room promotes via telephone calls to brokerage clients or spam email thinly traded stocks. The boiler room usually holds a large position in the stock and plans to dump it on brokerage clients at a high price.
The boiler room usually has close ties to or the same owners of the company whose stock is being promoted. Some traits of a boiler room include presenting only good news about the stock to be sold, and discouraging outside research by customers or brokers working there.
The term is likely to have originated from the cheap, hastily arranged office space used by such firms, often just a few desks in a the basement or utility room of an existing office building.
The term is a fitting analogy due to the secretive nature of these firms, the connections with the company they are promoting and the high-pressure nature of their activities.
How to Find a Good Stockbroker. Finding the right stockbroker is an important decision. What exactly does a stockbroker do? A stockbroker invests in the stock market for individuals or corporations. Only members of the stock exchange can conduct transactions, so whenever individuals or corporations want to buy or sell stocks they must go through a brokerage house.
Stockbrokers often advise and counsel their clients on appropriate investments. Brokers explain the workings of the stock exchange to their clients and gather information from them about their needs and financial ability, and then determine the best investments for them.
The broker then sends the order out to the floor of the securities exchange by computer or by phone. When the transaction has been made, the broker supplies the client with the price. The buyer pays for the stock and the broker transfers the title of the stock to the client and performs clearing and settlement procedures.
Now that you know what a stockbroker does, the next question you need to ask yourself is: Do I want a full service or discount broker? A full service stockbroker will give you recommendations for securities that you should buy. A discount broker only places the order that you give. You need to determine if you want the professional advice from a stockbroker or do your own research and just place orders. People use full service brokers for many reasons which include helping you diversify your portfolio, helping you get in on that hot stock tip, getting the rare stocks from the international markets and to give you the most up to date information on your investments.
Check with your stockbroker about the following: Stockbrokers must be dedicated to achieving the financial goals of their clients by understanding their needs, by providing research, analysis, advice and opportunities and fast, accurate and superior service! Contact your state or provincial securities agency in order to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm; find out if the investment is permitted to be sold; or file a complaint.
You can find contact information for your securities regulator here. How Stockbrokers Were Selected. This method uses a point value for criteria that we deemed valuable in determining the best stockbrokers. The criteria that was used and assessed a point value is as follows: Simply put, stockbrokers that have accumulated a certain amount of points qualified for the list.
This does not mean that stockbrokers that did not accumulate enough points are not good stockbrokers, they merely did not qualify for this list because of the points needed for qualification.
Similar studies have been done with other professions using a survey system. This type of study would ask fellow professionals whom they would recommend. We found this method to be more of a popularity contest; For instance, professionals who work in a large office have much more of a chance of being mentioned as opposed to a professional who has a small private practice. In addition, many professionals have a financial arrangement for back-and-forth referrals.
For these reasons, we developed the point value system. As with any profession, there will be some degree of variance in opinion. If you survey clients from a particular stockbrokerage company on their satisfaction, you will undoubtedly hear variances in their level of satisfaction. This is really quite normal. We feel that a point value system takes out the personal and emotional factor and deals with factual criteria.
We have made certain assumptions. For example, we feel that more years in practice is better than less years in practice; more education is better than less education and completing a rigorous course to obtain various "Series" licenses is better that not having done so. The stockbrokers list that we have compiled is current as of a certain date and other stockbrokers may have qualified since that date. Nonetheless, we feel that the list of the top stockbrokers is a good starting point for you to find a qualified specialist.
No fees, donations, sponsorships or advertising are accepted from any individuals, professionals, securities firms, brokerage firms, financial institutions, corporations or associations.
This policy is strictly adhered to insure an unbiased selection. This is a description of the part of a brokerage firm that is "client facing". The sales staff, brokers and traders are part of the front office.
Functions of the front office include acquisition and entry of orders, fulfillment of the orders, and all the regulatory reporting for the orders. The back office is where the clearance processing of the trades is done. Transfer of securities and money and the tracking of "failure to deliver" is handled. Securities lending for a brokerage firm, wherein shares of a security that is being sold short are located to ensure they can be delivered, is usually included in the back office as well.
A service sold by investment banks to "hedge funds. Hedge Funds have grown in size and influence on the public securities and private investment markets. The following "core services" are typically bundled into the Prime Brokerage package: In addition, certain prime brokers provide additional "value-added" services, which may include some or all of the following:. A retail broker is a brokerage firm that caters to the average investor or, in other words, the retail sector of investors - as opposed to the institutional sector of investors.
Both discount and full-service firms are retail brokers. The majority of brokers who advertise on TV are retail brokers. A low cost brokerage can be considered to be a special case of a discount brokerage which functions in a similar way to a dividend reinvestment program. ShareBuilder, BUYandHOLD, and FolioFN are the better known examples of such low cost brokers.
Low cost brokers are generally less expensive for an investor who invests in small amounts say, fixed dollar amounts and who is not particular that the stock trade must happen in real time. Low cost brokers execute orders only a few times a day by aggregating orders from a large number of small investors into one or more block trades which are made at certain specific times during the day. Such block trades are also sometimes referred to as window trades.
Window trades help lower costs in two ways:. Since investor money is pooled before stocks are bought or sold, it enables investors to contribute small amounts of cash using which fractional shares of specific stocks can be purchased. This is usually not possible with a regular stock broker.
Low cost brokers also provide real-time trades but these are usually but not necessarily charged a higher commission. What is a Stock Trader? Stock investors purchase stocks with the intention of holding for an extended period of time, usually several months to years. They rely primarily on fundamental analysis for their investment decisions and fully recognize stock shares as part-ownership in the company.
Many investors believe in the Buy-and-Hold strategy, which as the name suggests, implies that investors will hold stocks for the very long term, generally measured in years. This strategy was made popular in the equity bull market of the s and 90s where buy-and-hold investors rode out short-term market declines and volatility and continued to hold as the market returned to its previous highs and beyond.
On the other hand, stock traders usually try to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. Some try to rely upon the psychology of other stock market agents buyers and sellersand privileged or confidential information, in order to take their capital gain see speculation and insider trading. In modern days, a number of truly committed full time traders are usually technical analysis or charting experts.
Individuals or firms trading as their principal capacity are called stock traders or simply traders. The stock trader is usually a professional. In this case, the financial manager could be an independent professional or a large bank corporation employee. This may include managers dealing with investment funds, hedge funds, mutual funds, and pension funds, or other professionals in equity investment, fund management, and wealth management. A very active stock trader who holds positions for a very short time and makes several trades each day is a day trader.
Several different types of stock trading or investing exist including day trading, swing trading, market making, trend following, scalping tradingmomentum trading, short-term countertrend trading, trading the news, and arbitrage. In the case of longer-term trend following, some trades may last longer than several months. Finance, MSN Money, AFX News, Newratings, Forbes, BusinessWeek, Hoover's.
They exclusively trade on their own behalf, as a principal, investing money on a share or other financial instrument, which they believe will increase in price aiming to sell it later with earnings. Trading activities are not free. According to each National or State legislation, a large array of fiscal obligations must be respected, and taxes are charged by the State over the transactions and earnings. Beyond these costs, the opportunity costs of money and time, the currency risk, the financial risk, and all the Internet Service Provider, data and news agency services and electricity consumption expenses must be added.
Although many companies offer courses in stock picking, and numerous experts report success through Technical Analysis and Fundamental Analysis, many economists and academics state that because of Efficient market theory it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself.
In a normal distribution of investors, many academics believe that the richest are simply outliers in such a distribution e. For this reason most academics and economists recommend that investors invest in funds that follow an index in the market, i. Financial journals and newspapers such as the Wall Street Journal have done articles on stock picking in the past. One famous article involved a stock picking contest between a panel of Wall Street experts, the public and a dart board.
One member was elected to throw darts at the Journal's stock page in order to select a portfolio. At the end of the experiment, the public and the dart board both beat the board of Wall Street experts. Was the dart board more savvy? The dart board's triumph over the Wall Street experts can be attributed to chance one could also attribute the dart board losing to the experts to chance as well. Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions will usually not necessarily always be closed before the market close of the trading day.
Traders that participate in day trading are called day traders. Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures.
Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firms employees working as specialists in equity investment and fund management. However, day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet. Due to the high profits and losses that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors.
The price of financial instruments here, stocks can vary greatly within the same trading day. Although collectively called day trading, there are many sub-trading styles within the whole "day trading" tree. A day trader is not necessarily very active. Depending on one's trading strategy, the number of trades made in a day may vary from a few to hundreds. Some day traders focus on very short or short-term trading, in which a trade may last seconds to a few minutes.
They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage. Some day traders focus only on momenta or trends.
They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders. Traditionally it is suggested day traders should always settle their positions before the market close of the trading day to avoid the risk of price gaps differences between the previous day's close and the next day's open price at the open. Some day traders consider this to be a golden rule to be obeyed at all times. However, some day traders believe it is acceptable to stay with a position after the market closes as long as it is still following a favorable trend.
Day traders often borrow money to trade. Since margin interests are typically only charged on overnight balances, the extra costs discourage them from holding positions overnight. Due to the nature of financial leverage and the rapid returns that are possible, day trading can be extremely profitable, and high-risk profile traders can generate huge percentage returns.
Some day traders manage to earn millions per year solely by day trading. Nevertheless day trading can become very risky, especially if one has poor discipline, risk or money management. The common use of buying on margin using borrowed funds amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time.
In addition, brokers usually allow bigger margins for day traders. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his original investment, or even larger than his total assets.
Even when a position has made a profit, the trader has to offset the transaction costs and the interest on the margin. Originally, the most important U.
A trader would contact a stockbroker, who would relay the order to a specialist on the floor of the NYSE. These specialists would each make markets in only a handful of stocks. The specialist would match the purchaser with another broker's seller; write up physical tickets that, once processed, would effectively transfer the stock; and relay the information back to both brokers. One of the first steps to make day trading of shares potentially profitable was the change in the commission scheme.
Inthe Securities and Exchange Commission made fixed commissions illegal, giving rise to discount brokers offering much reduced commission rates. Financial settlement periods used to be much longer: Before the early s at the London Stock Exchange, for example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy or sell shares at the beginning of a settlement period only to sell or buy them before the end of the period hoping for a rise or fall in price.
This activity was identical to modern day trading, but for the longer duration of the settlement period. Nowadays, to reduce market risk, the settlement period is typically less than a working day. Reducing the settlement period reduces the likelihood of default, but was impossible before the advent of electronic ownership transfer. The systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of Electronic Communication Networks ECNs.
These are essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price the asking price or "ask" or offer to buy a certain amount of securities at a certain price the "bid". The first of these was Instinet. Instinet or "inet" ECNs and exchanges are usually known to traders by a three- or four-letter designators, which identify the ECN or exchange on Level II stock screens was founded in as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during hours when the exchanges were closed.
Early ECNs such as Instinet were very unfriendly to small investors, because they tended to give large institutions better prices than were available to the public. This resulted in a fragmented and sometimes illiquid market. The next important step in facilitating day trading was the founding in of NASDAQ -- a virtual stock exchange on which orders were transmitted electronically. Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to legislation but also the development of the necessary technology: These developments heralded the appearance of "market makers": A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock.
Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". It is of no importance to the market-maker whether the price of a stock goes up or down, as it has enough stock and capital to constantly buy for less than it sells.
Today there are about firms who participate as market-makers on ECNs, each generally making a market in four to forty different stocks.
Without any legal obligations, market-makers were free to offer smaller spreads on ECNs than on the NASDAQ. Inthe SEC adopted "Order Handling Rules" which required market-makers to publish their best bid and ask on the NASDAQ. Another reform made during this period was the "Small Order Execution System", or "SOES", which required market makers to buy or sell, immediately, small orders up to shares at the MM's listed bid or ask.
A defect in the system gave rise to arbitrage by a small group of traders known as the "SOES bandits", who made fortunes buying and selling small orders to market makers.
The existing ECNs began to offer their services to small investors. New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. New ECNs also arose, most importantly Archipelago arca and Island isld. Archipelago eventually became a stock exchange and in was purchased by the NYSE At this time, the NYSE has proposed merging Archipelago with itself, although some resistance has arisen from NYSE members. Moreover, the trader would be able to buy the stock almost instantly and would get it at a cheaper price.
ECNs are in constant flux. New ones are formed, while existing ones are bought or merge. As of the end ofthe most important ECNs to the individual trader are Instinet which bought Island inArchipelago although technically it is now an exchange rather than an ECNand The Brass Utility "brut"as well as the SuperDot electronic system now used by the NYSE.
This combination of factors has made day trading in stocks and stock derivatives such as ETFs possible. The low commission rates allow an individual or small firm to make a large numbers of trades during a single day.
The liquidity and small spreads provided by ECNs allow an individual to make near-instantaneous trades and to get favorable pricing. The ability for individuals to day trade coincided with the extreme bull market in technical issues from to earlyknown as the Dot-com bubble. From tothe NASDAQ rose from to Adding to the day-trading frenzy were the enormous profits made by the "SOES bandits". Unlike the new day traders, these individuals were highly-experienced professional traders able to exploit the arbitrage opportunity created by SOES.
In March,this bubble burst, and a large number of less-experienced day traders began to lose money as fast, or faster, than they had made during the buying frenzy. The NASDAQ crashed from back to ; many of the less-experienced traders went broke. There are several basic strategies by which day traders attempt to make a profit: Trend following, playing news events, range trading, and scalping.
In addition to or instead of these, some day traders also use Contrarian reverse strategies more commonly seen in algorithmic trading to trade specifically against irrational behavior from day traders using these approaches. Some of these approaches require shorting stocks instead of buying them normally: There are several technical problems with short sales: Some of these restrictions in particular the uptick rule don't apply to trades of stocks that are actually shares of an exchange-traded fund ETF.
Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa. The trend follower buys an instrument which has been rising, or short-sells a falling one, in the expectation that the trend will continue. Playing news is primarily the realm of the day trader.
The basic strategy is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits or losses. Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match tone of the news itself.
The most common cause for this is when rumors or estimates of the event like those issued by market and industry analysts were already circulated before the official release, and prices have already moved in anticipation. The news is said to be already "priced-in" to the stock price. A range trader watches a stock that has been rising off a support price and falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa.
Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells and possibly short sells at the high. A related approach to range trading is looking for moves outside of an established range, called a breakout price moves up or a breakdown price moves downand assume that once the range has been broken prices will continue in that direction for some time.
Scalping originally referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds.
Scalping highly liquid instruments for off the floor daytraders involves taking quick profits while minimizing risk lose exposure. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands. Some day trading strategies including scalping and arbitrage require relatively sophisticated trading systems and software. Many day traders use multiple monitors or even multiple computers to execute their orders.
A fast Internet connection, such as broadband, is essential for day trading. Day traders do not use retail brokers, slow to execute trades, and with higher commissions than direct access brokers, who allow the trader to send their orders directly to the ECNs instead of indirectly through brokers.
Direct access trading offers substantial improvements in transaction speed and will usually result in better trade execution prices reducing the costs of trading.
Commissions for direct-access brokers are calculated based on volume. The more one trades, the cheaper the commission is. A scalper can cover that cost with even a minimal gain. As for the calculation method, some use pro-rata to calculate commissions and charges, where each tier of volumes charge different commissions. Other brokers use a flat-rate, where all commissions charges are based on which volume threshold one reaches. Real-time market data is necessary for day traders, rather than using the delayed by anything from 10 to 60 minutes, per exchange rules market data that is available for free.
A real-time data feed requires paying fees to the respective stock exchanges, usually combined with the broker's charges; these fees are usually very low compared to the other costs of trading.
The fees may be waived for promotional purposes or for customers meeting a minimum monthly volume of trades. Even a moderately active day trader can expect to meet these requirements, making the basic data feed essentially "free". In addition to the raw market data, some traders purchase more advanced data feeds that include historical data and features such as scanning large numbers of stocks in the live market for unusual activity.
Complicated analysis and charting software are other popular additions. These types of systems can cost from tens to hundreds of dollars per month to access. Day trading is considered a risky trading style, and regulations require brokerage firms to ask whether the clients understand the risks of day trading and whether they have prior trading experience before entering the market.
In addition, NASD and SEC further restrict the entry by means of "pattern day trader" amendments. Pattern day trader is a term defined by the Securities and Exchange Commission to describe any trader who buys and sells a particular security in the same trading day day tradesand does this four or more times in any five consecutive business day period.
A pattern day trader is subject to special rules. A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. The term 'the stock market' is a concept for the mechanism that enables the trading of company stocks collective sharesother securities, and derivatives.
Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets but, like bonds, mostly 'over-the-counter'.
The size of the 'stock market' is estimated as about half that. It must be noted though that the derivatives market, because it is stated in terms of notional outstanding amounts, cannot be directly compared to a stock or fixed income market, which refers to actual value. The stocks are listed and traded on stock exchanges which are entities a corporation or mutual organization specialized in the business of bringing buyers and sellers of stocks and securities together.
The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. These are also working on a very large scale. Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry.
This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals.
Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. Buying or selling at market means you will accept any bid price or ask price for the stock. When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace virtual or real.
Swim With The Sharks As A Stockbroker
The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange is a physical exchange, where much of the trading is done face-to-face on a trading floor. This is also referred to as a "listed" exchange because only stocks listed with the exchange may be traded.
Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method known as "open outcry": For a trade to take place, there must be a matching bid and ask price.
If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time. Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is a significant amount of direct human contact in this process, computers do play a huge role in the process, especially for so-called "program trading".
The Nasdaq is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer provides a bidding price. However, buyers and sellers are electronically matched. One or more Nasdaq market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.
The Paris Boursenow part of Euronextis an order-driven, electronic stock exchange. It was automated in the late s. Before, it consisted of an open outcry exchange.
Stockbrokers met in the trading floor or the Palais Brongniart. Inthe CATS trading system was introduced, and the order matching process was fully automated. From time to time, active trading especially in large blocks of securities have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. That share probably will increase to 18 percent by as more investment banks bypass the NYSE and Nasdaq and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.
Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories and emotional ties to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions e. The rise of the institutional investor has brought with it some improvements in market operations.
Thus, the government was responsible for "fixed" and exorbitant fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees they then went to 'negotiated' fees, but only for large institutions. However, corporate governance at least in the West has been greatly affected by the rise of institutional 'owners.
Braudel suggests that in Cairo in the 11th century Islamic and Jewish merchants had already set up every form of trade association and had knowledge of every method of credit and payment, disproving the belief that these were invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks.
Because these men also traded with debts, they could be called the first brokers. In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in they became the "Brugse Beurse"institutionalizing what had been, until then, an informal meeting. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.
In the middle of the 13th century Venetian bankers began to trade in government securities. In the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century.
This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses.
Inthe Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. The Amsterdam Stock Exchange or Amsterdam Beurs is also said to have been the first stock exchange to introduce continuous trade in the early 17th century.
The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII. There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, China Hong KongIndia, UK, Germany, France and Japan.
The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.
History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption.
Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.
The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations.
The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than 20 per cent in the s.
The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds.
Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks.
Stock prices fluctuate widely, in marked contrast to the stability of government insured bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale.
The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments such as 'investment' property, i. With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtalking each other to get investors' attention.
At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened.
Sometimes forexware fxdd appears to be no rhyme or reason to the market, only folly. This is a quote from the preface to a published biography about the well-known and long term value oriented stock investor Warren Buffett.
Buffett began his career with only U. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st.
From experience we know that investors may temporarily pull financial prices away from their long term trend level. Dubai stock market presentations may occur— so that excessive optimism euphoria may drive prices unduly high or excessive pessimism may drive prices unduly low. New theoretical and empirical arguments have been put forward against the notion that financial markets are efficient.
According to the efficient market hypothesis EMHonly changes in fundamental factors, such as profits or dividends, ought to affect share prices. But this largely theoretic academic viewpoint also predicts that little or no trading should take place— contrary to fact— since prices are already at or near equilibrium, having priced in all public knowledge.
But the efficient-market hypothesis is sorely tested by such events as the stock market crash inwhen the Dow Jones index plummeted This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix a definite cause: It also seems to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period confirms this.
Moreover, while the EMH predicts that all price movement in the absence of change in fundamental information is random i. Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact.
Other research has shown that psychological factors may result in exaggerated stock price movements. Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise.
Something like seeing familiar shapes in clouds or ink blots. In the present context this means that a succession of good news items about a company may lead investors to overreact positively unjustifiably driving the price up. A period of good returns also boosts the investor's self-confidence, reducing his psychological risk threshold. Another phenomenon— also from psychology— that works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of stock brokers in delhi ncr group.
An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those trading forex dengan windows phone 8 others in the group.
In one paper the authors draw an analogy with gambling. In normal times the market behaves like a game of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker herding behavior takes over. The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically.
The stock market, as any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. The media amplified the general euphoria, with reports of rapidly rising share prices and the notion that big money earners sums of money could be quickly earned in the so-called new economy stock market.
And later amplified the gloom which descended during the - crash, so that by summer ofpredictions of a DOW average below were quite common. Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors and mass panic. Furthermore, the stock market comprises a large amount of speculative analysts, or pencil pushers, who have no substantial money or financial interest in the market, but make market predictions and suggestions regardless.
Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market difficult to predict. The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e. Such indices are usually market capitalization the total market value of floating capital of the company weighted, with the weights reflecting the contribution of the stock to the index.
Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange traded funds ETFsstock index and stock options, equity swaps, single-stock futures, and stock index futures.
These last two may be traded on futures exchanges which otc trading strategies distinct from stock exchanges—their history traces back to commodities futures exchangesor traded over-the-counter.
As all of these products are only derived from stocks, they are sometimes considered to be traded in a hypothetical derivatives market, rather than the hypothetical stock market. Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale.
In short selling, the trader borrows stock usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime or losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position.
Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most but not all stock markets. In margin buying, the trader borrows money at interest to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value.
A margin call is made if the total value of the investor's account cannot support the loss of the trade. Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position.
The investor is responsible for any shortfall following such forced sales. Regulation of margin requirements by the Federal Reserve tips on how to be a good stockbroker implemented after the Crash of Before that, speculators typically only needed to put up as little as 10 percent or even less of the total investment divergence forex trading by the stocks purchased.
Other rules may include the prohibition of free-riding: One of the many things people always want to know about the stock market is, "How do I make money investing? Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends regardless of the company's financial prospects.
One example of a technical strategy is the Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns, utilizes strict money management and is also rooted in risk control and diversification.
Additionally, many choose to invest via the index method. The principal aim of this strategy is to maximize minute how to trade binary options profitably review, minimize taxes from too frequent trading, and ride the general trend of the stock market which, in the U. Finally, one may trade based on inside information, which is known as insider trading. However, this is illegal in most jurisdictions i.
The New York Stock Exchange. The New York Stock Exchange NYSEnicknamed the "Big Board," is a New York City-based privately-owned stock exchange by the NYSE Group NYX. It is the largest stock exchange in the world by dollar volume and the second largest by number maruchan ramen stock market companies listed.
Its share volume was exceeded by that of NASDAQ during the s, but the total market capitalization of companies listed on the NYSE is five times that of companies listed on NASDAQ. The NYSE is operated by NYSE Group, which was formed by merger with the fully electronic stock exchange Archipelago Holdings. The New York Stock Exchange trading floor is located at 11 Wall Street, and is composed of five rooms used for the facilitation of trading. The main building is listed on the National Register of Historic Places and is located at 18 Broad Street, between the corners of Wall Street and Exchange Place.
NYSE Group is acquiring Euronext, and many of its operations particularly IT and the trading platform will be combined with that of the New York Stock Exchange and NYSE Arca. The NYSE trades in a continuous auction format. There is one specific location on the trading floor where each listed stock trades.
Most of the time natural buyers and sellers meet in a market that provides efficient price discovery in an auction environment that is designed to produce the fairest price for both parties.
The human interaction and expert judgment as to order execution differentiates the NYSE from fully electronic markets. Recent proposals have been made to adopt a Hybrid market structure combining elements of open what happens to stock market during inflation and electronic markets.
The frenzied how much money you can earn from adsense of men and women in colored smocks has been captured in several movies, including Wall Street. In the mids, the NYSE Composite Index NYSE: Invertir en forex opiniones was created, with a base value of 50 points equal to the yearly close, to reflect the value of all stocks trading at the exchange instead of just the 30 stocks included in the Dow Jones Industrial Average.
To raise the profile of the composite index, in the NYSE set its new base value of 5, points equal to the yearly close. Previously, the index had stood just below points, with lifetime highs and lows of points and 33 points, respectively.
The lifetime high of the NYSE Composite in trading stands at 9, Since September 30, the NYSE trading hours have been 9: The right to directly trade shares on the exchange is conferred upon owners of the "seats". The term comes from the fact that up until the s NYSE members sat in chairs to trade; this system was eliminated long ago.
Inthe number of cours gratuit de trading forex was fixed atand this number was increased several times over the years. Inthe exchange stopped at seats. These seats are a sought-after commodity as they confer the ability to directly trade stock on the NYSE. Seat prices have varied widely over the years, generally falling during recessions and rising during economic expansions. The NYSE now sells one-year licenses to trade directly on the exchange.
The origin of the NYSE can be traced to May 17,when the Buttonwood Agreement was signed by twenty-four stockbrokers outside of 68 Wall Street in New York under a buttonwood tree. This name was shortened to its current form in Anthony Stockholm was elected the Exchange's first president. But the volume of stocks traded had increased sixfold in the years between and and a larger space was required to conduct business in the expanding marketplace. Eight New York City architects were invited to participate in a design competition for a new building and the Exchange selected the neoclassic design from architect George B.
Demolition of the existing building at 10 Broad Street and the adjacent lots started on 10 May The trading floor was one of the largest volumes of space in the city at the time at x feet wide 33 x The main facade of the building features marble sculpture by John Quincy Adams Ward in the pediment, above six tall Corinthian capitals, called "Integrity Protecting the Works of Man".
The building was listed as a National Historic Landmark and added to the National Register of Historic Places on June 2, Additional trading floor space was added in and the "blue room" with the latest technology for information display and communication.
Another trading floor was opened at 30 Broad Street in With the arrival of the Hybrid Market, a greater proportion of trading was executed electronically and the NYSE decided to close the 30 Broad Street trading room in early The Exchange was closed shortly after the beginning of World War I Julybut it was re-opened on November 28 of that year in order to help the war effort by trading bonds. On September 16,a bomb exploded on Wall Street outside the NYSE building, killing 33 people and injuring more than The perpetrators were never found.
The NYSE building and some buildings nearby, such as the JP Morgan building, still have marks on their facades caused by the bombing. The Black Thursday crash of the Exchange on October 24,and the sell-off panic which started on Black Tuesday, October 29, are often blamed for precipitating receivable put options Great Depression. In an effort binary options and forex trading try to restore investor confidence, the Exchange unveiled a fifteen-point program aimed to upgrade protection for the investing public on October 31, On October 1,the exchange was registered as a national securities exchange with the U.
Securities and Exchange Commission, with a president and a thirty-three member board. On February 18, the not-for-profit corporation was formed, and the number of board members was reduced to twenty-five. On August 24,Abbie Hoffman led a group opposed to capitalism and other things, including the Vietnam War in the gallery of the New York Stock Exchange. The protestors threw fistfuls of mostly fake dollar bills down to the traders below, who began to scramble frantically to grab the money, as fast as they could.
Hoffman claimed to be pointing out that, metaphorically, that's what NYSE traders "were already doing". The NYSE then installed barriers in the gallery, to prevent this kind of protest from interfering with trading again. This was a very controversial move and prompted a quick change in the rule; trading now halts for an hour, two hours, or the rest of the day when the DJIA drops 10, 20, or 30 percent, respectively.
The rationale behind the trading halt was to give investors a chance to cool off and reevaluate their positions. The NYSE was closed from September 11 until September 17, as a result of the September 11, attacks.
On September 17,NYSE chairman and chief executive Richard Wasatch stock trading stepped down as a result of controversy concerning the size of his deferred compensation stock brokerage compare. He was replaced as CEO by John Thain, the former President of Goldman Sachs Group Inc.
On April 21,the NYSE announced its plans to acquire Archipelagoin a deal that is intended to bring the NYSE public. On December 6,the NYSE's governing board voted to acquire rival Archipelago and become a for-profit, public company. It began trading under the name NYSE Group on March 8, The Dow Jones Industrial Averagewhich started on October 1,hit a record high on January 03 of Marsh Carter is the Chairman of the New York Stock Exchange, succeeding John S.
John Thain is the CEO of the NYSE. Gerald Putnam and Catherine Kinney are the co-Presidents of the NYSE. The Dow Jones Industrial Average. The Dow Jones Industrial Average NYSE: Dow compiled the index as a way to gauge the performance of the industrial component of America's stock markets. It is the oldest continuing U. Today, the average consists of 30 of the largest and most widely held public companies in the United States. The "industrial" portion of the name is largely historical — many of the 30 modern components have little to do with heavy industry.
To compensate for the effects of stock splits and other adjustments, it is currently a scaled average, not the actual average of the prices of its component stocks — the actual average of prices is multiplied by a scale factor, which changes over time, to generate the value of the index. First published on May 26,the DJIA represented the average of twelve stocks from various important American industries.
Of those original twelve, only General Electric remains part of the average. The other eleven were:. When it was first published, the index stood at It was computed as a direct average, by first adding up stock prices of its components and dividing by the number of stocks.
Many of the biggest percentage price moves in the Dow occurred early in its history, as the nascent industrial economy matured. Inthe number of stocks in the DJIA was increased to twenty, and finally to thirty innear the height of the "roaring s" bull market. The highs of September 3, would not be surpassed until The s and especially the s saw a very rapid increase in the average, though severe corrections did occur along the way.
The uncertainty of the early s brought a significant bear market, and whether it has ended or simply gone into hibernation has been an ongoing subject of debate. The DJIA is criticized for being a price-weighted average, which gives relatively higher-priced stocks more influence over the average than their lower-priced counterparts. Additionally, the inclusion of only 30 stocks in the average has brought on additional criticism of the average, as the DJIA is widely used as an indicator of overall market performance.
Another issue with the Dow is that not all 30 components open at the same time in the morning. Only a few components open at the start and the posted opening price of the Dow is determined by the price of those few components that open first and the previous day's closing price of the remaining components that haven't opened yet; therefore, the posted opening price on the Dow will always be close to the previous day's closing price which can be observed by looking at Dow price history and will never accurately reflect the true opening prices of all its components.
Thus, in terms of candlestick charting theory, the Dow's posted opening price cannot be used how to make money as an indie filmmaker determining the condition of the market. The individual components of the DJIA are occasionally changed as market conditions warrant.
They are selected by the editors of The Wall Street Journal. When companies are replaced, the scale factor used to calculate the index is also adjusted so that the value of the average is not directly affected by the change. On November 1,Chevron, Goodyear Tire and Rubber Company, Sears Roebuck, and Union Carbide were removed from the DJIA and replaced by Intel, Microsoft, Home Depot, and SBC Communications.
Intel and Microsoft became the first two companies traded on the NASDAQ exchange to be listed in the DJIA. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a "divisor", which is published on the Chicago Board of Trade's website. The divisor is adjusted in case of splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA.
The initial divisor was the number of component companies, so that the DJIA was at first a simple arithmetic average; the present divisor, after many adjustments, is less than one meaning the index is actually larger than the sum of the prices of the component prices. Events like stock splits or changes in the list of the companies composing the index alter the sum of the prices of the component prices.
In these cases, in order to avoid discontinuity in the index, the Dow divisor is updated so that the quotations right before and after the event coincide:. Because the DJIA is an average of stock prices, it is more strongly affected by relative changes in performance of high-priced stocks than by lower-priced ones. In this sense higher-priced stocks have a greater "weight" in the index.
A list of the effective weight of each component is published daily by Dow Jones, although the weights change whenever the prices of the component stocks change. The weights are simply proportional to the stock prices, and are not used in calculating the DJIA. Apart from investing in the individual stocks in the Dow Jones, there also is the option to invest in an exchange-traded fund ETF which represents ownership in a portfolio of the equity securities that comprise the DJIA.
This ETF is called the Diamonds, and the ticker symbol is AMEX: The units of this ETF, therefore, represent an opportunity collinson forex ltd auckland the investor to achieve the same performance of the DJIA minus fund expenses and trade like any other stock on the Amex Exchange, so they can be bought on margin, sold short or held for the long term. Dow futures and option contracts trade actively on the Chicago Board of Trade CBOT.
Like most parallel trading hong kong stock exchange stock market indices, the Dow undergoes periods of general increase and general declines or stagnation.
A bull market is a term denoting a period of price increases, while a bear market denotes a period of declines. Wall Street generally considers a bear market in session when the main stock market index is more than 20 percent below its all-time high.
By this definition, as of the close ofthe Dow will enter a bear market if it sustains ichimoku kinko hyo forex strategy fall below the 10, point milestone, which it last touched in April There are two types of bull markets. A secular bull market is a period in which the stock market index is continually reaching all-time highs with only brief periods of correction, as during the s, and can last upwards of 15 years.
A cyclical bull market is a period in which the stock market index is reaching week or multi-year highs and may briefly peak at all-time highs before a rapid decline, as in the early s. It usually occurs within relatively longer bear markets and lasts about three years.
The following are the secular bull and bear markets experienced by the Dow since its inception: On October 3,the Dow achieved new record closing and intra-day highs for the first time in nearly seven years. Later that month, the index closed above 12, for the first time October 19and stayed above the milestone to set record weekly October 27 and monthly October 31 closing levels.
While some experts might consider the concurrent record highs on foreign currency etf basket DJIA, the Dow Jones Transportation Average, and the Dow Jones Utilities taking place on February 14, the first time that forex tampere aukioloaika three finished at record highs on the same day since March 17, as Dow Theory confirmation that the bear market ended inthe depressed state of the technology market compared with leaves that a matter of dispute.
For current record highs, please see Wikipedia's Closing Milestones of the Dow Jones Industrial Average. Dow Theory is a theory on stock price movements that provides a basis for technical analysis.
The theory was derived from Wall Street Journal editorials written by Charles H. Dow —journalist, first editor of the Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William P. Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented "Dow Theory," based on Dow's editorials.
Dow himself never used the term "Dow Theory," though. The six basic tenets of Dow Theory as summarized by Hamilton, Rhea, and Schaefer are described below.
As with many investment theories, there is conflicting evidence in support and opposition of Dow Theory. Alfred Cowles in a study in Econometrica in showed that trading based upon the editorial advice would have resulted in earning less than a buy-and-hold strategy using a well diversified portfoilio.
Cowles concluded that a buy-and-hold strategy produced After numerous studies supported Cowles over the following years, many academics stopped studying Dow Theory believing Cowles's results were conclusive. In recent years however, some in the academic community have revisited Dow Theory and question Cowles' conclusions. William Goetzmann, Stephen Brown, and Alok Kumar believe that Cowles' study was incomplete and that Dow Theory produces excess risk-adjusted returns.
The Chicago Board of Trade also notes that there is growing interest in market timing strategies such as Dow Theory. One key problem with any aksjer day trading of Dow Theory is that the editorials of Charles Dow did not contain explicitly defined investing "rules" so some assumptions and interpretations are necessary. And as with many academic studies of investing strategies, practitioners often disagree with academics.
Many technical analysts consider Dow Theory's definition of a trend and its insistence on studying price action as the main premises of modern technical analysis. Markets have three trends Price is all vibrant. It is never stagnant and can't be.
It should and must have its own direction to move, which may or may not be known to us. This direction is called as the trends of that particular stock or the average.
To start with, Dow defined an uptrend trend 1 as a time when successive rallies in a security price close at levels higher than those achieved in previous rallies and when lows occur at levels higher than previous lows. Downtrends trend 2 occur when markets make lower lows and lower highs.
It is this concept of Dow Theory that provides the basis of technical analysis' definition of a price trend. Dow described what he saw as a recurring theme in the market: But we can still find out a direction to the stock trend and that's called "choppy trend".
Simply the sideways movements of any scrip is defined as "choppy" trend. Trends have three phases Dow Theory asserts that major market trends are composed of three phases: The accumulation phase phase 1 is when investors "in the know" are actively buying saints row the third easy money barnstorming stock against the general opinion of the market.
During this phase, the stock price does not change much because these investors are in the minority absorbing releasing stock that the market at large is supplying demanding.
Eventually, the market catches on to these astute investors and a rapid price change occurs phase 2. This is when trend followers and other technically oriented investors participate. This phase continues until rampant speculation occurs. At this point, the astute investors begin to distribute their holdings to the market phase 3.!!!
The stock market discounts all news Stock prices quickly incorporate new information as soon as it becomes available. Once news is released, stock prices will change to reflect this new information. On this point, Dow Theory agrees how to start a forex company in india one of the premises of the efficient market hypothesis. Stock market averages must confirm each other In Dow's time, the US was a growing industrial power.
The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial manufacturing companies and rail companies.
To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. The logic is simple to follow. If manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers.
Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction.
When the performance of the averages diverge, it is a warning that change is in the air. Even today, both Barron's Magazine and the Wall Street Journal publish the daily performance of the Dow Jones Transportation Index in chart form.
The index contains major railroads, shipping companies, and air freight carriers in the US. Trends are confirmed by volume Dow believed that volume confirmed price trends.
When prices move on low volume, there could be many different explanations why.
An overly aggressive seller could be present for example. But when price movements are accompanied by high volume, Dow believed this represented the "true" market view. If many participants are active in a particular security, and the price moves significantly in one direction, Dow maintained that this was the direction in which the market anticipated continued movement.
To him, it was a signal that a trend is developing. Trends exist until definitive signals prove that they have ended Dow believed that trends existed despite "market noise". Markets might temporarily move in the direction opposite the trend, but they will soon resume the prior move. The trend should be given the benefit of the doubt during these reversals.
Determining whether a reversal is the start of a new trend or a temporary movement in the current trend is not easy. Dow Theorists often disagree in this determination.
Technical analysis tools attempt to clarify this but they can be interpreted differently by different investors. All of the stocks in the index are those of large publicly held companies and trade on major US stock exchanges such as the New York Stock Exchange and Nasdaq. It is considered to be a bellwether for the US economy and is a component of the Index of Leading Indicators.
A broader index of companies was also published weekly. This introduction was made possible by advancements in the computer industry which allowed the index to be calculated and disseminated in real time. The index, near the height of the bubble, reached an all-time closing high of 1, Since then, the US stock markets have gradually recovered.
This is similar to the Dow 30, but different from others such as the Russellwhich are strictly rules-based. Although the index includes many large companies in the US, it is not simply a list of the biggest companies, and includes a handful 11 as of September 19, that are incorporated outside of the US and are therefore technically not US companies.
The companies are carefully selected to ensure that they are representative of various industries in the US economy. In addition, companies that do not trade publicly such as those that are privately or mutually held and stocks that do not have sufficient liquidity stock market drops china not in the index.
By contrast, the Fortune attempts to list the largest companies in the United States by gross revenue, regardless of whether their stocks trade or their liquidity, without adjustment for industry representation, and excluding companies binary options account types outside the US.
The index was previously market-value weighted; that is, movements in price of companies whose total market valuation share price times the number of outstanding shares is larger will have a greater effect on the index than companies whose market valuation is smaller. The transition was made in two tranches, the first on March 18, forex ea autopilot the second on September 16, Typical volume for the SPDR is over 42 million shares per day, second only to QQQQ.
IVVwhich has a slightly lower expense ratio, but is otherwise identical to the SPDRs. They trade like any other stock on the American Stock Exchange, so they can be bought on margin, sold short, or held for the long term. Notable among them is The Vanguard Group's fund: NASDAQ originally an acronym for Forex polish zloty Association of Securities Dealers Automated Quotations system is an American electronic stock exchange.
It was founded in by the National Association of Securities Dealers NASDwho divested it in a series of sales in and It is owned and operated by The Nasdaq Stock Market, Inc. NDAQ the stock of which was listed on its own stock exchange in NASDAQ is the largest electronic screen-based equity securities market in the United States.
With approximately 3, companies, it lists more companies and, on average, trades more shares per day than any other U. The current chief executive officer is Robert Greifeld. When it began trading on February 8,it was the world's first electronic stock market.
At first, it was merely a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the spread the difference between the bid price and the ask price of the stock but somewhat paradoxically was unpopular among brokerages because they made much of their money on the spread.
Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market to advertise to the general public, highlighting NASDAQ-traded companies usually in technology and closing with the declaration that NASDAQ is "the stock market for the next hundred years. Untilmost trading occurred via the telephone, but during the October stock market crash, market makers often didn't answer their phones.
To counteract this, the Small Order Execution System SOES was established, which provides an electronic method for dealers to enter their trades. NASDAQ requires market makers to honor trades over SOES.
On July 17,the NASDAQ Composite index closed above the 1, mark for the first time. The index peaked at an intra-day high of 5, The index declined to half its value within a year, and finally found a bear market bottom at its intra-day low of 1, While the index has gradually recovered since then, reaching a six-year monthly closing high above the 2, level on November 30,it is still as of early trading for less than half of its peak value.
The LSE described the offer as "derisory. NASDAQ later vystar money makeover jacksonville fl its bid, and less than two weeks later on April 11,struck a deal with Djia market stock largest shareholder, Ameriprise Financial's Threadneedle Asset Management unit, to acquire all of that firm's stake, consisting of NASDAQ also purchased 2.
While the seller of those shares was undisclosed, it occurred simultaneously with a sale by Scottish Widows of 2. The move was seen as an effort to force LSE to negotiate either a partnership or eventual merger, as well as to block other suitors such as NYSE Group, owner of the New York Stock Exchange.
However only a further 0. NASDAQ allows multiple market participants to trade through its Electronic Communication Networks ECNs structure, increasing competition. The Small Order Execution System SOES is another NASDAQ feature, introduced into ensure that in 'turbulent' market conditions small market orders are not forgotten but are automatically processed.
With approximately 3, companies, it lists more companies and, on average, trades more shares per day than any other stock exchange in the world. It is home to companies that are leaders across all areas of business including technology, retail, communications, financial services, digging, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks. NASDAQ quotes are available at three levels. Level I shows the highest bid and lowest offer — the inside quote.
Level II shows all public quotes of market makers together with information of market makers wishing to sell or buy stock and recently executed orders. Trading forex dengan windows phone 8 III is used by the market makers and preteen ways to earn money them to enter their quotes and execute orders.
It was founded in The NASD Board of Governors consists of two staff members the CEO and the President of one of NASD's divisionsseven individuals representing the industry, seven individuals representing the public, and two individuals categorized as "non-public".
NASD regulates trading in equities, corporate bonds, securities futures and options, with authority over the activities of more than 5, brokerage firms, approximatelybranch offices, and more thanregistered securities representatives.
All firms dealing in securities that are not regulated by another SRO, such as by the Municipal Securities Rulemaking Board "MSRB"are required to be member firms of the NASD. NASD licenses individuals and admits firms to the industry, writes rules to govern their behavior, examines them for regulatory compliance, and is sanctioned by the U.
Securities and Exchange Commission "SEC" to discipline registered representatives and member firms that fail to comply with federal securities laws and NASD's rules and regulations. It provides education and qualification examinations to industry professionals. It also sells outsourced regulatory products and services to a number of stock markets and exchanges e.
American Stock Exchange "AMEX" and the International Securities Exchange "ISE". NASD founded the NASDAQ "National Association of Securities Dealers Automated Quotations" stock market in forex chart eur chf InNASD demutualized from NASDAQ by selling its ownership interest.
The NASD is funded primarily by assessments of member firms' registered representatives and applicants, annual fees paid by members, and by fines that it levies. The annual fee that each member pays includes a basic membership fee, an assessment based on gross income, a fee for each principal and registered representative, and charge for each branch office.
The securities market has become increasingly "retail"; with a majority of American's owning stock through work and personal investing. Some members of the securities industry have criticized the NASD for purportedly pursuing minor rule violations. In the past, some claimed that the NASD turned a blind eye to alleged abuses on the NASDAQ market of the gps forex robot 2 myfxbook 's.
Some investors lost money from their investments during the volatility experienced during this period, bringing into question whether the NASD carried out is duty to protect the individual investor. Today, NASD, in conjunction with the SEC, and various state attorney general offices' have vigorously worked to ensure the integrity of the market place for the investing public. The NASD operates the nation's largest arbitration forum for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms.
As of Junethe pool of arbitrators consisted of 3, individuals classified as representing the public and 2, individuals considered industry panelists. McMahon, the Supreme Court ruled that account forms signed by customers requiring arbitration for disputes were enforceable contracts. Brokerage firms now require all customers to sign such documents, requiring binding arbitration. For disputes between customers and member firms, the panel that decides the case consists of three arbitrators, one representing the securities industry and two designated as public investor representatives.
For a given case, the two sides are provided separate lists by NASD of local, available arbitrators, from which they chose. If one side rejects all listed arbitrators, NASD names the arbitrators who will serve; these can be rejected only for biases, misclassification, conflicts, gci trading currency converter undisclosed material information, and biases or conflicts must be identified prior to the beginning of hearings.
For an overview of the Securities Arbitration process, see Introduction to Securities Arbitration. According to NASD, there were 6, cases for arbitration filed ina decrease from the peak of 8, cases filed in The average time to complete a case has risen from NASD rules do not bull trend stock market definition parties to be represented by attorneys.
A party may appear pro se, or be represented by a non-attorney in arbitration. However, representation by a non-attorney is not advised since this may be the unauthorized practice of law. Brokerage firms routinely hire attorneys, so a customer who does not can be at a serious disadvantage.
One organization whose members specialize in representing customers against brokerage firms in NASD and NYSE arbitration is the Public Investors Arbitration Bar Association "PIABA". In JuneLewis D. Lowenfels, an expert in securities law at a New York law firm, said of the NASD arbitration process: Followers of this style, known as value investors, generally buy companies whose shares appear underpriced by some forms of fundamental analysis; these may include shares that are trading at, for example, high dividend yields or low price-to-earning or price-to-book ratios.
The main proponents of value investing, such as Benjamin Graham and Warren Buffett have argued that the fx options accounting of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety".
The intrinsic value is the discounted value of all future distributions. However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value investing concept even further as his thinking has evolved to where for the last 25 years or so his focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Value investing was established by Benjamin Graham and David Dodd, both professors at Columbia University and teachers of many famous investors. In Graham's book The Intelligent Investor, he advocated the important concept of margin of safety — first introduced in Security Analysis, a book he coauthored with Cheap stocks that will make money Dodd — which calls for a cautionary approach to investing.
In terms of picking stocks, he recommended defensive investment in stocks trading not far from their tangible book value as a safeguard to adverse future developments often encountered in the stock market. However, the concept of value as well as "book value" has evolved significantly since the s. Book value is meaningful only in some traditional stable industries where the value of an asset is well defined.
When an industry is going through fast technological advancements, the value of its assets is not easily estimated. Sometimes, the production power of an asset can be significantly reduced due to competitive disruptive innovation and therefore its value can suffer permanent impairment. One good example of decreasing asset value is a personal computer. An example of where book value does not mean much is the service and retail sectors.
One modern model of calculating value is the discounted cash flow model DCF. The value of an asset is the sum of its future cash flows, discounted back to the present. Value investing has proved to be a successful investment strategy.
There are several ways to evaluate its success. One way is to examine the performance of simple value strategies, such as buying low PE ratio stocks, low price-to-cash-flow ratio stocks, or low price-to-book ratio stocks. Numerous academics have published studies investigating the effects of buying value stocks. These studies have consistently found that value stocks outperform growth stocks and the market as a whole.
Another way to examine the performance of value investing strategies is to examine the investing performance of well-known value investors. Simply examining the performance of the best known value investors would not be instructive, because investors do not become well known unless they are successful. This introduces a selection bias. A better way to investigate the performance of a group of value investors was suggested by Warren Buffett, in his May 17, speech that was published as The SuperInvestors of Graham and Doddsville.
In this speech, Buffett examined the performance of those investors who worked at Graham-Newman Corporation and were thus most influenced by Benjamin Graham.
Buffett's conclusion is identical to that of the academic research on simple value investing strategies--value investing is, on average, successful in the long run. Benjamin Graham is regarded by many to be the father of value investing. Along with David Dodd, he wrote Security Analysis, first published in The most lasting contribution of this book to the field of security analysis was to emphasize the quantifiable aspects of security analysis such as the evaluations of earnings and book value while minimizing the importance of more qualitative factors such as the quality of a company's management.
Graham later wrote The Intelligent Investor, a book that brought value investing to individual investors. Many of Graham's students, such as William J.
Ruane, Irving Kahn, Walter Schloss, and Charles Brandes went on to become successful investors in their own right. Graham's most famous student, however, was Warren Buffett, who ran successful investing partnerships before closing them in to focus on running Berkshire Hathaway. Charlie Munger joined Buffett at Berkshire Hathaway in the s and has since worked as Vice Chairman of the company. Buffett has credited Munger with encouraging him to focus on long-term sustainable growth rather than on simply the valuation of current cash flows or assets.
Another famous value investor is John Templeton. He first achieved investing success by buying shares of a number of companies in the aftermath of the stock market crash of He went on to become famous for investing in global equity markets.
Many successful value investors have gained fame recently. He is known for investing in special situations such as spin-offs, mergers, and divestitures. Edward Lampert is the chief of ESL Investments. He is best known for buying large stakes in Sears and Kmart and then merging the two companies. Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets.
The objectives of the analysis may be to calculate credit risk, to evaluate management and make internal business decisions, or to determine the value of a company's stock and its probable future. The analysis is performed on historical and present data, but the objective is to predict future stock or business performance. When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies.
Investors can use both these different but somewhat complementary methods for stock picking. Many fundamental investors use technicals for deciding entry and exit points. Many technical investors use fundamentals to limit their universe of possible stock to 'good' companies. The choice of stock analysis is determined by the investor's belief in the different paradigms for "how the stock market works". See the discussions at efficient market hypothesisrandom walk hypothesis, Capital Asset Pricing Model, Fed model Theory of Equity Valuation, and behavioral finance.
Investors may use fundamental analysis within different portfolio management styles. The analysis of a business' health starts with financial statement analysis that includes ratios. It looks at dividends paid, operating cash flow, new equity issues and capital financing. The earnings estimates and growth rate projections published widely by Thomson Financial and others can be considered either 'fundamental' they are facts or 'technical' they are investor sentiment based on your perception of their validity.
The determined growth rates of income and cash and risk levels to determine the discount rate are used in various valuation models. The foremost is the discounted cash flow model, which calculates the present value of the future. The multiple accepted is adjusted for expected growth that is not built into the model. Growth estimates are incorporated into the PEG ratio but the math does not hold up to analysis. Its validity depends on the length of time you think the growth will continue.
Computer modeling of stock prices has now replaced much of the subjective interpretation of fundamental data along with technical data in the industry. Since about yearwith the power of computers to crunch vast quantities of data, a new career has been invented. At some funds the manager's decisions have been replaced by proprietary mathematical models.
A shareholder or stockholder is an individual or company including a corporation that legally owns one or more shares of stock in a joint stock company. Companies listed at the stock market strive to enhance shareholder value.
Stockholders are granted special privileges depending on the class of stock, including the right to vote usually one vote per share owned on matters such as elections to the board of directors, the right to share in distributions of the company's income, the right to purchase new shares issued by the company, and the right to a company's assets during a liquidation of the company. However, stockholder's rights to a company's assets are subordinate to the rights of the company's creditors.
This means that stockholders typically receive nothing if a company is liquidated after bankruptcy if the company had had enough to pay its creditors, it would not have entered bankruptcyalthough a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured.
Stockholders or shareholders are considered by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization.
Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders. Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.
However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders.
The largest shareholders in terms of percentages of companies owned are often mutual funds, and especially passively managed exchange-traded funds. Initial Public Offering IPO. An initial public offering IPO is the first sale of a corporation's common shares to investors on a public stock exchange. The main purpose of an IPO is to raise capital for the corporation. While IPOs are effective at raising capital, they also impose heavy regulatory compliance and reporting requirements.
The term only refers to the first public issuance of a company's shares; any later public issuance of shares is referred to as a secondary market offering or a rights issue.
A shareholder selling his existing shares rather than shares newly issued to raise capital on the Primary Market is an offer for sale, but if the company is being newly listed this is still considered to fall under the "IPO" umbrella. When a company lists its shares on a public exchange it will almost invariably look to issue additional new shares in order to raise extra capital at the same time.
The money paid by investors for the newly-issued shares goes directly to the company in contrast to a later trade of shares on the exchange, where the money passes between investors. An IPO therefore allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company.
The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms.
In addition, once a company is listed it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list. IPOs generally involve one or more investment banks as "underwriters.
The underwriter then approaches investors with offers to sell these shares. The sale that is, the allocation and pricing of shares in an IPO may take several forms. A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks lead underwriter. Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold.
Usually, the lead underwriters, i. Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions.
Usually the lead underwriter in the main selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements, IPOs typically involve one or more law firms with major practices in securities law, such as the Magic Circle firms of London and the white shoe firms of New York City.
Usually the offering will include the issuance of new shares, intended to raise new capital, as well the secondary sale of existing shares. However, certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some shares are also allocated to the underwriters' retail investors. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. The client pays no commission to purchase the shares of a public offering, the purchase price simply includes the built in sales credit.
In the United States, during the dot-com bubble of the late s, many venture capital driven companies were started, and seeking to cash in on the bull market, quickly offered IPOs. Usually, stock price spiraled upwards as soon as a company went public, as investors sought to get in at the ground-level of the next potential Microsoft and Netscape.
Initial founders could often become overnight millionaires, and due to generous stock options, employees could make a great deal of money as well. The majority of IPOs could be found on the Nasdaq stock exchange, which is laden with companies related to computer and information technology.
This phenomenon was not limited to the United States. In Japan, for example, a similar situation occurred. Some companies were operated in a similar way in that their only goal was to have an IPO. Some stock exchanges were set up for those companies, such as Nasdaq Japan. Perhaps the clearest bubbles in the history of hot IPO markets were inwhen closed-end fund IPOs sold at enormous premiums to net asset value, and inwhen closed-end country fund IPOs sold at enormous premiums to net asset value.
What makes these bubbles so clear is the ability to compare market prices for shares in the closed-end funds to the value of the shares in the funds' portfolios. When market prices are multiples of the underlying value, bubbles are clearly occurring. A venture capitalist named Bill Hambrecht has attempted to devise a method that can reduce the inefficient process.
He devised a way to issue shares through a Dutch auction as an attempt to minimize the extreme underpricing that underwriters were nurturing. Underwriters, however, have not taken to this strategy very well. Though not the first company to use Dutch auction, Google is one established company that went public through the use of auction.
Perception of IPOs can be controversial. For those who view a successful IPO to be one that raises as much money as possible, the IPO was a total failure. For those who view a successful IPO from the kind of investors that eventually gained from the underpricing, the IPO was a complete success. It's important to note that different sets of investors bid in auctions versus the open market - more institutions bid, fewer private individuals bid.
Google may be a special case, however, as many individual investors bought the stock based on long-term valuation shortly after it launched its IPO, driving it beyond institutional valuation.
Historically, IPOs both globally and in the US have been underpriced. The effect of underpricing an IPO is to generate additional interest in the stock when it first becomes publicly traded. This can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, underpricing an IPO results in "money left on the table," lost capital that could have been raised for the company had the stock been offered at a higher price.
The danger of overpricing is also an important consideration.
If a stock is offered to the public at a higher price than what the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, if the stock falls in value on the first day of trading, it may lose its marketability and hence even more of its value. Investment banks therefore take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company.
The process of determining an optimal price usually involves the underwriters "syndicate" arranging share purchase commitments from lead institutional investors. Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian, or a delivery versus payment "DVP" arrangement with the selling group brokerage firm.
After the newly public company has its IPO, it enters a "quiet period. The quiet period is in effect for 40 calendar days following the first trading day. Regulatory changes by the United States Securities and Exchange Commission, changed the quiet period of 25 days, to 40 days on July 9, When the quiet period is over, generally the lead underwriters will initiate research coverage on the firm.
Commodity is a term with distinct meanings in both business and in Marxian political economy. For the former, it is a largely homogeneous product, traded solely on the basis of price, whereas for the latter, it refers to wares offered for exchange. The Latin root meaning is commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit.
The German equivalent is die Ware, i. The French equivalent is "produit de base" like energy, goods, industrial raw materials. In the world of business, a commodity is an undifferentiated product, good or service that is traded based solely on its price, rather than quality and features. More modern commodities include bandwidth, RAM chips and experimentally computer processor cycles, and negative commodity units like emissions credits.
In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent.
It is the contract and this underlying standard that define the commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely.
Microeconomists also include labor, and currency as commodities that can be bought and sold. Wheat is an example of a soft commodity. Wheat from many different farms is pooled. Generally, it is all traded at the same price; wheat from farm A is not differentiated from wheat from farm B.
Some uniform standard of quality must necessarily be assumed. There may be various standards leading to different pools: Failures to match the consumer's assessment of risk and usefulness for some purpose, can lead to lower prices or the necessity of dividing the market into different pools - a very major issue in agricultural policy.
Markets for trading commodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity. In classical political economy and especially Karl Marx's critique of political economy, a commodity is simply any good or service offered as a product for sale on the market. Some items are also seen as being treated as if they were commodities, e. Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the labor theory of value.
This problem was extensively debated by Adam Smith, David Ricardo and Karl Rodbertus-Jagetzow among others. Value and price are not equivalent terms in economics, and theorizing the specific relationship of value to market price has been a challenge for both liberal and Marxist economists.
6 Tips for Stock Brokers to Get More Business - omotohu.web.fc2.com
In Marx's theory, a commodity has value, which represents a quantity of human labor. The fact that it has value implies straightaway that people try to economize its use. A commodity also has a use value, an exchange value and a price. According to the labor theory of value, product-values in an open market are regulated by the average socially necessary labor time required to produce them, and price relativities are ultimately governed by the law of value.
To understand the concept of a commodity, consider a chair. It is a commodity if the chair is a tradeable product of human work possessing a social use-value. By contrast, a fallen log of deadwood sat upon in the forest is not a commodity, as it was not produced by human work for the purpose of trade.
A chair created by a hobbyist as a gift to someone is not a commodity. Nor is a chair a commodity as a chair if its only use would be as scrap firewood unless one purchases a chair specifically to chop it up for fire wood. A chair that nobody could sit on has no use-value, and cannot be a commodity unless it has an ornamental value, e.
Click here for a List of Traded Commoditiesfrom Wikipedia. Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized Contracts. This article focuses on the history and current debates regarding global commodity markets. It covers physical product food, metals, electricity markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity.
Articles on reinsurance markets, stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets.
The modern commodity markets have their roots in the trading of agricultural products. While wheat and corn, cattle and pigs, were widely traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established, there must be very broad consensus on the variations in the product that make it acceptable for one purpose or another.
The economic impact of the development of commodity markets is hard to over-estimate. Through the 19th century "the exchanges became effective spokesmen for, and innovators of, improvements in transportation, warehousing, and financing, which paved the way to expanded interstate and international trade.
Historically, dating from ancient Sumerian use of sheep or goats, or other peoples using pigs, rare seashells, or other items as commodity money, people have sought ways to standardize and trade contracts in the delivery of such items, to render trade itself more smooth and predictable. Commodity money and commodity markets in a crude early form are believed to have originated in Sumer where small baked clay tokens in the shape of sheep or goats were used in trade. Sealed in clay vessels with a certain number of such tokens, with that number written on the outside, they represented a promise to deliver that number.
This made them a form of commodity money - more than an "I. However, they were also known to contain promises of time and date of delivery - this made them like a modern futures contract. Regardless of the details, it was only possible to verify the number of tokens inside by shaking the vessel or by breaking it, at which point the number or terms written on the outside became subject to doubt.
Eventually the tokens disappeared, but the contracts remained on flat tablets. This represented the first system of commodity accounting. However, the Commodity status of living things is always subject to doubt - it was hard to validate the health or existence of sheep or goats.
Excuses for non-delivery were not unknown, and there are recovered Sumerian letters that complain of sickly goats, sheep that had already been fleeced, etc. If a seller's reputation was good, individual "backers" or "bankers" could decide to take the risk of "clearing" a trade. The observation that trust is always required between market participants later led to credit money. But until relatively modern times, communication and credit were primitive.
5 Simple Tips for Successful Stock Trading | InvestorPlace
Classical civilizations built complex global markets trading gold or silver for spices, cloth, wood and weapons, most of which had standards of quality and timeliness. Considering the many hazards of climate, piracy, theft and abuse of military fiat by rulers of kingdoms along the trade routes, it was a major focus of these civilizations to keep markets open and trading in these scarce commodities. Reputation and clearing became central concerns, and the states which could handle them most effectively became very powerful empires, trusted by many peoples to manage and mediate trade and commerce.
Early on these "forward" contracts agreements to buy now, pay and deliver later were used as a way of getting products from producer to the consumer. These typically were only for food and agricultural products.
Forward contracts have evolved and have been standardized into what we know today as futures contracts. Although more complex today, early "Forward" contracts for example, were used for rice in seventeenth century Japan. Modern "forward", or futures agreements, began in Chicago in the s, with the appearance of the railroads.
Chicago, being centrally located, emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers. If the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions.
Whole developing nations may be especially vulnerable, and even their currency tends to be tied to the price of those particular commodity items until it manages to be a fully developed nation. For example, one could see the nominally fiat money of Cuba as being tied to sugar prices, since a lack of hard currency paying for sugar means less foreign goods per peso in Cuba itself.
In effect, Cuba needs a hedge against a drop in sugar prices, if it wishes to maintain a stable quality of life for its citizens.
In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two or more business days prior to the delivery day, so that the routing of the shipment which for soybeans is 30, kilograms or 1, bushels can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point.
Non-screened, stored in silo ," and of deliverable grade if they are "GMO or a mixture of GMO and Non-GMO No. Non-screened, stored in silo. Similar specifications apply for orange juice, cocoa, sugar, wheat, corn, barley, pork bellies, milk, feedstuffs, fruits, vegetables, other grains, other beans, hay, other livestock, meats, poultry, eggs, or any other commodity which is so traded. The concept of an interchangeable deliverable or guaranteed delivery is always to some degree a fiction.
Trade in commodities is like trade in any other physical product or service. No magic of the commodity contract itself makes "units" of the product totally uniform nor gets it to the delivery point safely and on time. Cotton, kilowatt-hours of electricity, board feet of wood, long distance minutes, royalty payments due on artists' works, and other products and services have been traded on markets of varying scale, with varying degrees of success.
One issue that presents major difficulty for creators of such instruments is the liability accruing to the purchaser:. Unless the product or service can be guaranteed or insured to be free of liability based on where it came from and how it got to market, e.
Generally, governments must provide a common regulatory or insurance standard and some release of liability, or at least a backing of the insurers, before a commodity market can begin trading. This is a major source of controversy in for instance the energy market, where desirability of different kinds of power generation varies drastically.
In some markets, e. However, if there are two or more standards of risk or quality, as there seem to be for electricity or soybeans, it is relatively easy to establish two different contracts to trade in the more and less desirable deliverable separately. If the consumer acceptance and liability problems can be solved, the product can be made interchangeable, and trading in such units can begin. Since the detailed concerns of industrial and consumer markets vary widely, so do the contracts, and "grades" tend to vary significantly from country to country.
A proliferation of contract units, terms, and futures contracts have evolved, combined into an extremely sophisticated range of financial instruments. These are more than one-to-one representations of units of a given type of commodity, and represent more than simple futures contracts for future deliveries.
These serve a variety of purposes from simple gambling to price insurance. Building on the infrastructure and credit and settlement networks established for food and precious metals, many such markets have proliferated drastically in the late 20th century.
Oil was the first form of energy so widely traded, and the fluctuations in the oil markets are of particular political interest. Some commodity market speculation is directly related to the stability of certain states, e. Similar political stability concerns have from time to time driven the price of oil.
Some argue that this is not so much a commodity market but more of an assassination market speculating on the survival or not of Saddam or other leaders whose personal decisions may cause oil supply to fluctuate by military action. The oil market is, however, an exception. Most markets are not so tied to the politics of volatile regions - even natural gas tends to be more stable, as it is not traded across oceans by tanker as extensively.
Developing countries Democratic or not have been moved to harden their currencies, accept IMF rules, join the WTO, and submit to a broad regime of reforms that amount to a "hedge" against being isolated. China's entry into the WTO signaled the end of truly isolated nations entirely managing their own currency and affairs. The need for stable currency and predictable clearing and rules-based handling of trade disputes, has led to a global trade hegemony - many nations "hedging" on a global scale against each other's anticipated "protectionism", were they to fail to join the WTO.
There are signs, however, that this regime is far from perfect. Commodity thinking is undergoing a more direct revival thanks to the theorists of "natural capital" whose products, some economists argue, are the only genuine commodities - air, water, and calories we consume being mostly interchangeable when they are free of pollution or disease.
Whether we wish to think of these things as tradeable commodities rather than birthrights has been a major source of controversy in many nations. Most types of environmental economics consider the shift to measuring them inevitable, arguing that reframing political economy to consider the flow of these basic commodities first and foremost, helps avoids use of any military fiat except to protect "natural capital" itself, and basing credit-worthiness more strictly on commitment to preserving biodiversity aligns the long-term interests of ecoregions, societies, and individuals.
They seek relatively conservative sustainable development schemes that would be amenable to measuring well-being over long periods of time, typically "seven generations", in line with Native American thought. However, this is not the only way in which commodity thinking interacts with ecologists' thinking.
Hedging began as a way to escape the consequences of damage done by natural conditions. It has matured not only into a system of interlocking guarantees, but also into a system of indirectly trading on the actual damage done by weather, using "weather derivatives". For a price, this relieves the purchaser of the following types of concerns:. Will there be a drought in the U. What are the chances that we will have a cold winter, driving natural gas prices higher and creating havoc in Florida orange areas?
Weather trading is just one example of "negative commodities", units of which represent harm rather than good. One way to fairly allocate the waste disposal capacity of nature is "cap and trade" market structure that is used to trade toxic emissions rights in the United States, e.
This is in effect a "negative commodity", a right to throw something away. In this market, the atmosphere's capacity to absorb certain amounts of pollutants is measured, divided into units, and traded amongst various market players.
Those who emit more SO2 must pay those who emit less. Critics of such schemes argue that unauthorized or unregulated emissions still happen, and that "grandfathering" schemes often permit major polluters, such as the state governments' own agencies, or poorer countries, to expand emissions and take jobs, while the SO2 output still floats over the border and causes death. In practice, political pressure has overcome most such concerns and it is questionable whether this is a capacity that depends on U.
The Kyoto Protocol established a similar market in global greenhouse gas emissions without U. This highlights one of the major issues with global commodity markets of either the positive or negative kind.
A community must somehow believe that the commodity instrument is real, enforceable, and well worth paying for. A very substantial part of the anti-globalization movement opposes the commodification of currency, national sovereignty, and traditional cultures. The capacity to repay debt, as in the current global credit money regime anchored by the Bank for International Settlements, does not in their view correspond to measurable benefits to human well-being worldwide.
They seek a fairer way for societies to compete in the global markets that will not require conversion of natural capital to natural resources, nor human capital to move to developed nations in order to find work. Some economic systems by green economists would replace the "gold standard" with a "biodiversity standard". It remains to be seen if such plans have any merit other than as political ways to draw attention to the way capitalism itself interacts with life. While classical, neoclassical, and Marxist approaches to economics tend to treat labor differently, they are united in treating nature as a resource.
The green economists and the more conservative environmental economics argue that not only natural ecologies, but also the life of the individual human being is treated as a commodity by the global markets.
A good example is the IPCC calculations cited by the Global Commons Institute as placing a value on a human life in the developed world "15x higher" than in the developing world, based solely on the ability to pay to prevent climate change. Accepting this result, some argue that to put a price on both is the most reasonable way to proceed to optimize and increase that value relative to other goods or services.
This has led to efforts in measuring well-being, to assign a commercial "value of life", and to the theory of Natural Capitalism - fusions of green and neoclassical approaches - which focus predictably on energy and material efficiency, i.
Indian economist Amartya Sen, applying this thinking to human freedom itself, argued in his book "Development as Freedom" that human free time was the only real service, and that sustainable development was best defined as freeing human time.
Sen won The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in sometimes incorrectly called the "Nobel Prize in Economics" and based his book on invited lectures he gave at the World Bank.
Commodity money is money whose value comes from a commodity out of which it is made. Examples of commodities that have been used as mediums of exchange include gold, silver, copper, salt, peppercorns, large stones, decorated belts, shells, cigarettes, and candy. Commodity money is to be distinguished from representative money which is a certificate or token which can be exchanged for the underlying commodity. A key feature of commodity money is that the value is directly perceived by the users of this money, who recognize the utility or beauty of the tokens as they would recognize the goods themselves.
That is, the effect of holding a token for a barrel of oil must be the same economically as actually having the barrel at hand. This thinking guides the modern commodity markets, although they use a sophisticated range of financial instruments that are more than one-to-one representations of units of a given type of commodity. In situations where the commodity is metal, typically gold or silver, a government mint will often coin money by placing a mark on the metal that serves as a guarantee of the weight and purity of the metal.
In doing so, the government will often impose a fee which is known as seigniorage. The role of a mint and of coin is different between commodity money and fiat money. In situations where there is commodity money, the coin retains its value if it is melted and physically altered, while in fiat money it does not. Commodity money often comes into being in situations where other forms of money are not available or not trusted.
Various commodities were used in pre-Revolutionary America including wampum, maize, iron nails, beaver pelts, and tobacco. In post-war Germany, cigarettes became used as a form of commodity money in some areas. Cigarettes are still used as a form of commodity money in prisons. Although commodity money is more convenient than barter, it can be inconvenient to use as a medium of exchange or a standard of deferred payment due to the transport and storage concerns.
The cost of such storage is often referred to as Demurrage currency and is in some instances regarded as a positive influence on the overlying financial system. Accordingly, notes began to circulate that a government or other trusted entity e. This creates a form of money known as representative money - the beginning of a long slow shift to credit money.
Historically gold was by far the most widely recognized commodity out of which to make money: A state could be described as a political enterprise with sufficient land, gold and reputation for protecting both, e.
Between andone U. However, actual trade in gold as a precious metal within the United States was banned - presumably to prevent anyone from actually going up to Fort Knox and asking for their gold. This was a fairly typical transition from commodity to representative to fiat money, with people trading in other goods being forced to trade in gold, then to receive paper money that purported to be as good as gold, and then ultimately see this currency "float" on commodity markets.
However, commodity money remained active in the background in some form or another, and seems to have been revived thanks to global capitalism, wherein a currency is widely traded as a commodity.
One way to view such trade is that currency of resource-rich nations tends to be tied to the price of those particular commodity items until it becomes a "developed nation".
Thus, one could see the nominally fiat money of say Cuba as being tied to the commodity "sugar" globally, rather than to the military power of Cuba that holds within its own borders.
Also, commodity supplies and protections of supplies by states' military fiat remain critical to trade, and there are active commodity market speculations on the stability of certain states, e. Some argue that this is not so much a commodity market but more of an assassination market speculating on the survival or not of Saddam himself. Finally, commodity money is undergoing a more direct revival thanks to theorists of green economics and natural capitalism, some of whom suggest a form of money based on ecological yield.
They argue that the outputs of "natural capital" are the only genuine commodities - air, water, and renewable energy we consume being mostly interchangeable when they are free of pollution or disease. However, such goods cannot be held directly, and so it is common to suggest that representative money be issued based on enhancing and extending nature's services, giving one the right to receive the yield as benefit. They argue that reframing political economy to consider the flow of these basic commodities first and foremost, avoiding use of military fiat except to protect "natural capital" itself, and basing credit-worthiness more strictly on commitment to preserving biodiversity rather than repayment of debt, as in the current global credit money regime anchored by the Bank for International Settlements, would provide measurable benefits to human well-being worldwide.
Critics of this type of proposal often note that, as with other transitions from commodity to representative money, inadequate substitutes will be made on a "just trust me" basis - as per Gresham's Law which states that bad money drives out good.
Other proposals, such as time-based money, rely on the availability of human labor as a commodity, especially within a community, which is presumably harder to guarantee access to, but also harder to steal. Still others deny the utility of commodifying labor as such, and suggest making free time the standard, since physical capital used for leisure, sport, art, theatre, and other forms of play is commodifiable and possible to control.
Some, in environmental economics, argue that the life of the individual human being and the natural ecologies are already both treated as commodities in global markets. They argue that to put a price on both is the most reasonable way to proceed to optimize and increase that value relative to other goods or services. This has led to efforts in measuring well-being, to assign a commercial "value of life", and to the theory of Natural Capitalism - which focuses predictably on energy and material efficiency, i.
An extreme example of this view is held by Indian economist Amartya Sen, who discussed the relationship between access to commodities, labor, and "the right to live as we would like" in his book "Development as Freedom", arguing that human free time was the only real service, and that sustainable development was best defined as freeing human time.
Sen's views are relatively mainstream - he won the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel sometimes incorrectly called the "Nobel Prize in Economics". Indigital gold currency was launched by e-gold as a form of commodity money, which uses a long established medium of exchange, namely gold. What is a Futures Contract? In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.
The future date is called the delivery date or final settlement date. The pre-set price is called the futures price.
The price of the underlying asset on the delivery date is called the settlement price. The settlement price, normally, converges towards the futures price on the delivery date. A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation.
In other words, the owner of an options contract may exercise the contract. If it is an American-style option, it can be exercised on or before the expiration date; a European option can only be exercised at expiration.