Genre/Form: Electronic books Handbooks and manuals Handbooks, manuals, etc Additional Physical Format: Print version: Business knowledge for IT in trading and exchanges. London: Essvale Corp. Ltd., ©2008 Material Type: Document, Internet resource Document Type: Internet Resource, Computer File ISBN: 4422 OCLC Number: 726849612 Description: 1 online resource (xii, 211 pages): illustrations.
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What is 'Online Trading' Online trading is simply buying and selling assets through a 's internet-based proprietary trading platforms. The use of online trading increased dramatically in the mid- to late-'90s with the introduction of affordable high-speed computers and internet connections.
Stocks, bonds, mutual funds, ETFs, options, futures, and currencies can all be traded online. Also known as e-trading or self-directed investing. BREAKING DOWN 'Online Trading' Traditionally, investors and traders have to call their to make a trade for them. If John wanted to purchase 50 shares of Intel, he would call his broker with a buy order request.
The broker would let John know the and confirm the purchase order. If the investor is making a, the broker has to confirm the limit price, how long to keep the order open for, what account to purchase the shares in (if John has multiple investment accounts), etc. The investment representative must also confirm the for making the trade. When all has been established, the broker would place the trade in the system which is linked to and, such as the (NYSE) or the. The client would receive a trade confirmation by mail and a monthly or quarterly statement of account showing a list of his investments.
If John wanted to transfer some cash from his to his checking account, and vice versa, he would also have to call in to make that transaction request. Today, with the advent of the internet in the digital era, more and more investors are using offered by their brokers for DIY (do-it-yourself) investing. The online trading platforms serve as a hub with multiple tools for the investor or trader. The investor can place buy and sell orders; place market, limit, stop, stop-loss, and stop-limit orders; check the status of an order; view real-time stock quotes; read news on companies; view the list of securities currently held through the dashboard; etc. An investor can also access his or her investment statements, confirmation statements, and investment tax forms using the online system. Most that are affiliated with banks also provide added convenience for their digital clients by linking their bank accounts to their investment accounts.
This way, an investor can easily initiate a transfer between accounts held under the same financial institution. The advent of online trading has reduced costs for both investors and discount brokers. To encourage people to do their investing themselves, brokers have lower commissions for trades placed online than for trades placed over the phone with a representative.
It is not uncommon to pay somewhere between $4.95 to $9.99 for an online trade; same trade which would cost about $29.99 if made over the phone. The lower fees have also made the accessible to a wider range of people who may not have been able to afford the higher commission fees of a personal advisor or over-the-phone trade. As brokers transition into automated trading, they save costs on their ends from hiring fewer human representatives. Another benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format.
When an investor enters an order online, the order is placed in a database which checks for the best price by searching all the that trade the stock in the investor's preferred currency. The exchange with the best price matches the buyer with a seller and sends the confirmation to both the buyer’s broker and the seller’s broker. All this is done within seconds of placing a trade, compared to making a phone call which has to go through several confirmation steps before the rep can enter the order. It is up to an investor or trader to do his on a broker before opening an online trading account with the company.
Before an account is opened, the client will be asked to fill out a questionnaire about his or her investment and financial history to determine what type of trading account is suitable for the client. If the investor has little knowledge about the different types of securities and trading strategies in the financial world, a simple will be opened for him for doing simple buy and sell orders on stocks, mutual funds, bonds, and ETFs. On the other hand, a sophisticated trader who would like to implement various trading techniques will be given a in which he can buy, short, and write securities such as stocks, options, futures, and currencies. Not all securities are available to be traded online, depending on your broker.
Some brokers require that you call them to place a trade on any stocks trading on the and select stocks trading. Also, not all brokers facilitate derivatives trading in commodities and currencies through their online platforms. For this reason, it is important that the trader understands what a broker offers before signing up with the trading platform.
The of the (NYSE) in the blooming era of. A stock market, equity market or share market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of (also called shares), which represent ownership claims on businesses; these may include securities listed on a public as well as those only traded privately. Examples of the latter include shares of private companies which are sold to through platforms. Stock exchanges list shares of common equity as well as other security types, e.g. Corporate bonds and convertible bonds.
Contents. Size of the market Stocks can be categorised in various ways. One way is by the country where the company is domiciled. For example, and are domiciled in Switzerland, so they may be considered as part of the stock market, although their stock may also be traded on exchanges in other countries, for example, as (ADRs) on U.S.
Stock markets. As of mid 2017, the size of the world stock market (total ) was about US$76.3 trillion. By country, the largest market was the United States (about 34%), followed by (about 6%) and the (about 6%). These numbers increased in 2013. As of 2015, there are a total of 60 stock exchanges in the world with a total of $69 trillion. Of these, there are 16 exchanges with a market capitalization of $1 trillion or more, and they account for 87% of global market capitalization. Apart from the, these 16 exchanges are based in one of three continents: North America, Europe and Asia.
Stock exchange. Main article: A stock exchange is a place where, or an organization through which, individuals and organizations can trade stocks. Many large companies have their stock listed on a stock exchange. This makes the stock more liquid and thus more attractive to many investors. It may also act as a guarantor of settlement. Other stocks may be traded 'over the counter' (OTC), that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, so as to attract international investors.
Stock exchanges may also cover other types of securities, such as fixed interest securities (bonds) or (less frequently) derivatives, which are more likely to be traded OTC. The Trade in stock markets means the transfer for money of a stock or security from a seller to a buyer. This requires these two parties to agree on a price.
(stocks or shares) confer an ownership interest in a particular company. Participants in the stock market range from small individual to larger investors, who can be based anywhere in the world, and may include, companies, and. Their buy or sell orders may be executed on their behalf by a stock exchange trader. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as. This method is used in some stock exchanges and, and involves traders shouting bid and offer prices. The other type of stock exchange has a network of computers where trades are made electronically. An example of such an exchange is the.
A potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same stock. Buying or selling at the market means you will accept any ask price or bid 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. The exchanges provide real-time trading information on the listed securities, facilitating.
The (NYSE) is a physical exchange, with a for placing orders electronically from any location as well as on the. Orders executed on the trading floor enter by way of exchange members and flow down to a, who submits the order electronically to the floor trading post for the ('DMM') for that stock to trade the order. The DMM's job is to maintain a two-sided market, making orders to buy and sell the security when there are no other buyers or sellers. If a exists, no trade immediately takes place – in this case the DMM may use their own resources (money or stock) to close the difference. Once a trade has been made, the details are reported on the ' and sent back to the brokerage firm, which then notifies the investor who placed the order. Computers play an important role, especially for.
The is a virtual exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. One or more NASDAQ will always provide a bid and ask price at which they will always purchase or sell 'their' stock. The, now part of, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange.
Met on the trading floor of the Palais Brongniart. In 1986, the was introduced, and the was fully automated.
People trading stock will prefer to trade on the most popular exchange since this gives the largest number of potential counterparties (buyers for a seller, sellers for a buyer) and probably the best price. However, there have always been alternatives such as brokers trying to bring parties together to trade outside the exchange.
Some third markets that were popular are, and later Island and Archipelago (the later two have since been acquired by Nasdaq and NYSE, respectively). Zard single collection 20th anniversary rar. One advantage is that this avoids the of the exchange. However, it also has problems such as. Financial regulators are probing.
Market participant. The offices of, Malaysia's national stock exchange (known before demutualization as Kuala Lumpur Stock Exchange) include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.
Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors. A few decades ago, most buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations.
Over time, markets have become more 'institutionalized'; buyers and sellers are largely institutions (e.g., investor groups, banks and various other ). The rise of the has brought with it some improvements in market operations. There has been a gradual tendency for 'fixed' (and exorbitant) fees being reduced for all investors, partly from falling administration costs but also assisted by large institutions challenging brokers' oligopolistic approach to setting standardised fees. A current trend in stock market investments includes the decrease in fees due to computerized asset management termed within the industry. Automation has decreased portfolio management costs by lowering the cost associated with investing as a whole. Trends in market participation Stock market participation refers to the number of agents who buy and sell equity backed securities either directly or indirectly in a financial exchange. Participants are generally subdivided into three distinct sectors; households, institutions, and foreign traders.
Direct participation occurs when any of the above entities buys or sells securities on its own behalf on an exchange. Indirect participation occurs when an institutional investor exchanges a stock on behalf of an individual or household. Indirect investment occurs in the form of pooled investment accounts, retirement accounts, and other managed financial accounts. Direct investment The total value of equity-backed securities in the United States rose over 600% in the 25 years between 1989 and 2012 as market capitalization expanded from $2,790 billion to $18,668 billion. Direct ownership of stock by individuals rose slightly from 17.8% in 1992 to 17.9% in 2007, with the median value of these holdings rising from $14,778 to $17,000. Indirect participation in the form of retirement accounts rose from 39.3% in 1992 to 52.6% in 2007, with the median value of these accounts more than doubling from $22,000 to $45,000 in that time.
Rydqvist, Spizman, and Strebulaev attribute the differential growth in direct and indirect holdings to differences in the way each are taxed in the United States. Investments in pension funds and 401ks, the two most common vehicles of indirect participation, are taxed only when funds are withdrawn from the accounts.
Conversely, the money used to directly purchase stock is subject to taxation as are any dividends or capital gains they generate for the holder. In this way the current tax code incentivizes individuals to invest indirectly. Participation by income and wealth strata Rates of participation and the value of holdings differs significantly across strata of income. In the bottom quintile of income, 5.5% of households directly own stock and 10.7% hold stocks indirectly in the form of retirement accounts. The top decile of income has a direct participation rate of 47.5% and an indirect participation rate in the form of retirement accounts of 89.6%. The median value of directly owned stock in the bottom quintile of income is $4,000 and is $78,600 in the top decile of income as of 2007. The median value of indirectly held stock in the form of retirement accounts for the same two groups in the same year is $6,300 and $214,800 respectively.
Since the Great Recession of 2008 households in the bottom half of the income distribution have lessened their participation rate both directly and indirectly from 53.2% in 2007 to 48.8% in 2013, while over the same time period households in the top decile of the income distribution slightly increased participation 91.7% to 92.1%. The mean value of direct and indirect holdings at the bottom half of the income distribution moved slightly downward from $53,800 in 2007 to $53,600 in 2013.
In the top decile, mean value of all holdings fell from $982,000 to $969,300 in the same time. The mean value of all stock holdings across the entire income distribution is valued at $269,900 as of 2013. Participation by head of household race and gender The racial composition of stock market ownership shows households headed by whites are nearly four and six times as likely to directly own stocks than households headed by blacks and Hispanics respectively. As of 2011 the national rate of direct participation was 19.6%, for white households the participation rate was 24.5%, for black households it was 6.4% and for Hispanic households it was 4.3% Indirect participation in the form of 401k ownership shows a similar pattern with a national participation rate of 42.1%, a rate of 46.4% for white households, 31.7% for black households, and 25.8% for Hispanic households. Households headed by married couples participated at rates above the national averages with 25.6% participating directly and 53.4% participating indirectly through a retirement account. 14.7% of households headed by men participated in the market directly and 33.4% owned stock through a retirement account. 12.6% of female headed households directly owned stock and 28.7% owned stock indirectly.
Determinants and possible explanations of stock market participation In a 2002 paper Anntte Vissing-Jorgensen from the University of Chicago attempts to explain disproportionate rates of participation along wealth and income groups as a function of fixed costs associated with investing. Her research concludes that a fixed cost of $200 per year is sufficient to explain why nearly half of all U.S. Households do not participate in the market. Participation rates have been shown to strongly correlate with education levels, promoting the hypothesis that information and transaction costs of market participation are better absorbed by more educated households. Behavioral economists Harrison Hong, Jeffrey Kubik and Jeremy Stein suggest that sociability and participation rates of communities have a statistically significant impact on an individual’s decision to participate in the market.
Their research indicates that social individuals living in states with higher than average participation rates are 5% more likely to participate than individuals that do not share those characteristics. This phenomenon also explained in cost terms. Knowledge of market functioning diffuses through communities and consequently lowers transaction costs associated with investing. Courtyard of the (or in Dutch), the world's first formal.
The first formal stock market in its modern sense – as one of the indispensable elements of – was a pioneering innovation by the managers and shareholders in the early 1600s. Early history In 12th-century France, the courretiers 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. A common misbelief is that, in late 13th-century, commodity traders gathered inside the house of a man called Van der Beurze, and in 1409 they became the 'Brugse Beurse', institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around and neighboring countries and 'Beurzen' soon opened in and. In the middle of the 13th century, bankers began to trade in government securities.
In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in, and 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. Italian companies were also the first to issue shares.
Companies in England and the Low Countries followed in the 16th century. Birth of formal stock markets. Established in 1875, the is Asia's first stock exchange. In the 17th and 18th centuries, the Dutch pioneering several financial innovations that helped lay the foundations of modern financial system.
While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged: corporate. In the early 1600s the (VOC) became the first company in history to issue and of to the general public.
As (2015) notes, 'companies with transferable shares date back to classical Rome, but these were usually not enduring endeavors and no considerable existed (Neal, 1997, p. The (founded in the year of 1602) was also the first to get a fixed capital stock and as a result, continuous trade in company stock occurred on the Amsterdam Exchange. Soon thereafter, a lively trade in various, among which options and repos, emerged on the market. Dutch traders also pioneered – a practice which was banned by the Dutch authorities as early as 1610.
There are now stock markets in virtually every developed and most developing economies, with the world's largest markets being in the United States, United Kingdom, Japan, China, Germany , France, and the. Importance As the economist noted, 'A stock market is crucial to the existence of and. For it means that there is a functioning market in the exchange of private titles to the. There can be no genuine private ownership of capital without a stock market: there can be no true if such a market is allowed to exist.' Function and purpose The stock market is one of the most important ways for to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market.
The that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as and other assets. Some companies actively increase liquidity by trading in their own shares. History has shown that the price of and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood.
An economy where the stock market is on the rise is considered to be an up-and-coming economy. The stock market is often considered the primary indicator of a country's economic strength and development. 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, tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of functions. Financial stability is the of central banks. 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 could default on the transaction. The smooth functioning of all these activities facilitates in that lower costs and enterprise risks promote the production of goods and services as well as possibly employment. In this way the financial system is assumed to contribute to increased prosperity, although some controversy exists as to whether the optimal financial system is bank-based or market-based.
Recent events such as the have prompted a heightened degree of scrutiny of the impact of the structure of stock markets (called ), in particular to the stability of the financial system and the transmission of. Relation to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is.
A portion of the funds involved in saving and financing, flows directly to the financial markets instead of being routed via the traditional bank lending and deposit operations. The general public interest in investing in the stock market, either directly or through, 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 1970s, in, and other very liquid assets with little risk made up almost 60 percent of households' financial wealth, compared to less than 20 percent in the 2000s. The major part of this adjustment is that have gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. 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.
Larry Harris
Similar tendencies are to be found in other. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) 'bank deposits to more risky securities of one sort or another'. A second transformation is the move to to replace human trading of listed. United States S&P stock market returns (assumes 2% annual dividend) Years to December 31, 2012 Average Annual Return% Average Compounded Annual Return% 1 15.5 15.5 3 10.9 11.6 5 4.3 10.1 10 8.8 7.3 15 6.5 5.9 20 10.0 6.4 30 11.6 7.3 40 10.1 8.0 50 10.0 8.1 60 10.5 8.2 Compared to Other Asset Classes Over the long term, investing in a well diversified portfolio of stocks such as an S&P 500 Index outperforms other investment vehicles such as Treasury Bills and Bonds, with the S&P 500 having a geometric annual average of 9.55% from 1928 to 2013. Behavior of the stock market.
In Times Square, New York City Investors may temporarily move financial prices away from market equilibrium. Over-reactions may occur—so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. Economists continue to debate whether financial markets are generally efficient. According to one interpretation of the (EMH), only changes in fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share prices beyond the short term, where 'noise' in the system may prevail. The 'hard' does not explain the cause of events such as the, when the plummeted 22.6 percent—the largest-ever one-day fall in the United States. This event demonstrated that share prices can fall dramatically even though no generally agreed upon definite cause has been found: a thorough search failed to detect any 'reasonable' development that might have accounted for the crash.
(Note that such events are predicted to occur strictly by, although very rarely.) It seems also to be the case more generally that many price movements (beyond that which are predicted to occur 'randomly') 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 seems to confirm this. A 'soft' EMH has emerged which does not require that prices remain at or near equilibrium, but only that market participants not be able to systematically profit from any momentary market '. Moreover, while EMH predicts that all price movement (in the absence of change in fundamental information) is random (i.e., non-trending), many studies have shown a marked tendency for the stock market to trend over time periods of weeks or longer. Various explanations for such large and apparently non-random 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 limits, theoretically could cause financial markets to overreact. But the best explanation seems to be that the distribution of stock market prices is non-Gaussian (in which case EMH, in any of its current forms, would not be strictly applicable).
Other research has shown that may result in exaggerated (statistically anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise, e.g. 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, driving the price up.
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A period of good returns also boosts the investors' self-confidence, reducing their (psychological) risk threshold. Another phenomenon—also from psychology—that works against an assessment is. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the 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 of others in the group.
In one paper the authors draw an analogy with. In normal times the market behaves like a game of; 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. In the period running up to the 1987 crash, less than 1 percent of the analyst's recommendations had been to sell (and even during the 2000–2002 bear market, the average did not rise above 5%).
In the run-up to 2000, the media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called stock market. Stock markets play an essential role in growing industries that ultimately affect the economy through transferring available funds from units that have excess funds (savings) to those who are suffering from funds deficit (borrowings) (Padhi and Naik, 2012). In other words, capital markets facilitate funds movement between the above-mentioned units. This process leads to the enhancement of available financial resources which in turn affects the economic growth positively. Moreover, both economic and financial theories argue that stock prices are affected by macroeconomic trends.
Many different academic researchers have stated companies with low P/E ratios and smaller sized companies have a tendency to outperform the market. Research carried out states mid-sized companies outperform large cap companies and smaller companies have higher returns historically. Irrational behavior Sometimes, the market seems to react irrationally to economic or financial news, even if that news is likely to have no real effect on the fundamental value of securities itself.
However, this market behaviour may be more apparent than real, since often such news was anticipated, and a counterreaction may occur if the news is better (or worse) than expected. Therefore, the stock market may be swayed in either direction by press releases, rumors, and. 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 behavior difficult to predict. Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally accepted.
Behaviorists argue that investors often behave irrationally when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money. However, the whole notion of EMH is that these non-rational reactions to information cancel out, leaving the prices of stocks rationally determined. The Dow Jones Industrial Average biggest gain in one day was 936.42 points or 11%. 's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest Rates, from, 2d ed. In the preface to this edition, Shiller warns, 'The stock market has not come down to historical levels: the price-earnings ratio as I define it in this book is still, at this writing 2005, in the mid-20s, far higher than the historical average. People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes.'
Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by (Figure 10.1, ). The horizontal axis shows the as computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later.
Data from different twenty-year periods is color-coded as shown in the key. Shiller states that 'confirms that long-term investors—investors who commit their money to an investment for ten full years—did do well when prices were low relative to earnings at the beginning of the ten years. Long-term investors would be well advised, individually, to lower their exposure to the stock market when it is high, as it has been recently, and get into the market when it is low.' A stock market crash is often defined as a sharp dip in of listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes end speculative.
There have been famous that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the and are being increasingly privatized and linked to and bonds and other elements of the market. There have been a number of famous stock market crashes like the, the, the, the of 2000, and the Stock Market Crash of 2008. One of the most famous stock market crashes started October 24, 1929, on Black Thursday.
The lost 50% during this stock market crash. It was the beginning of the. Another famous crash took place on October 19, 1987 – Black Monday. The crash began in Hong Kong and quickly spread around the world. By the end of October, stock markets in Hong Kong had fallen 45.5%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%.
Black Monday itself was the largest one-day percentage decline in stock market history – the Dow Jones fell by 22.6% in a day. The names 'Black Monday' and 'Black Tuesday' are also used for October 28–29, 1929, which followed Terrible Thursday—the starting day of the stock market crash in 1929. The crash in 1987 raised some puzzles – main news and events did not predict the catastrophe and visible reasons for the collapse were not identified. This event raised questions about many important assumptions of modern economics, namely, the, the and the. For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange computers did not perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday.
Since the early 1990s, many of the largest exchanges have adopted electronic 'matching engines' to bring together buyers and sellers, replacing the open outcry system. Electronic trading now accounts for the majority of trading in many developed countries. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market. The and the introduced the concept of a circuit breaker.
The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. In February 2012, the Investment Industry Regulatory Organization of Canada (IIROC) introduced single-stock circuit breakers. New York Stock Exchange (NYSE) circuit breakers% drop time of drop close trading for 10 before 2 pm one hour halt 10 2 pm – 2:30 pm half-hour halt 10 after 2:30 pm market stays open 20 before 1 pm halt for two hours 20 1 pm – 2 pm halt for one hour 20 after 2 pm close for the day 30 any time during day close for the day Stock market prediction.
Main article: Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are (ETFs), and, and stock index. These last two may be traded on (which are distinct from stock exchanges—their history traces back to futures exchanges), or traded. As all of these products are only from stocks, they are sometimes considered to be traded in a (hypothetical), rather than the (hypothetical) stock market. Leveraged strategies Stock that a trader does not actually own may be traded using; may be used to purchase stock with borrowed funds; or, may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales.
Short selling. Main article: 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, betting that the price will fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called 'covering.'
This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of is illegal in most (but not all) stock markets. Margin buying. Main article: 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. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500).
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 ) was implemented after the. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total represented by the stocks purchased.
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Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim). New issuance. Main article: Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a 29.8% increase over the $389 billion raised in 2003. (IPOs) by US issuers increased 221% with 233 offerings that raised $45 billion, and IPOs in (EMEA) increased by 333%, from $9 billion to $39 billion. ASX Share Market Game ASX Share Market Game is a platform for Australian school students and beginners to learn about trading stocks. The game is a free service hosted on ASX website.
Each year more than 70,000 students enroll in the game. For the vast majority, this is an introduction to stock market investing. Students once enrolled, are given $50,000 of virtual money and can buy and sell up to 20 times a day. The game runs for 10 weeks. Many similar programs are found in secondary educational institutions across the world.
Investment strategies. Main article: There are many different approaches to investing. Many strategies can be classified as either. Refers to analyzing companies by their found in, business trends, general economic conditions, etc. 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 method, used by and, which uses price patterns and is also rooted in and. Additionally, many choose to invest via the.
In this method, one holds a weighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (such as the or ). The principal aim of this strategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market (which, in the U.S., has averaged nearly 10% per year, compounded annually, since ). Taxation. Main article: According to much national or state legislation, a large array of fiscal obligations are taxed for. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market, in particular in the stock exchanges.
These fiscal obligations vary from jurisdiction to jurisdiction. Some countries avoid taxing profits on stocks as the profits are already taxed when companies file returns, but double taxation is common at some level in many countries. See also. References. Agarwal (July 14, 2017). Intelligent Economist. Retrieved December 18, 2017.
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Market Microstructure
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