Financial markets

Bond market Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debt

Stock market Stock Preferred stock Common stock Registered share Voting share Stock exchange

Foreign exchange market

Derivatives market Credit derivative Hybrid security Options Futures Forwards Swaps

Other Markets Commodity market Money market OTC market Real estate market Spot market

Finance series Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation

v • d • e

A stock market, or (equity market), is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds The bond market (also known as the debt, credit, or fixed income market) is a Financial market where participants buy and sell Debt Fixed income refers to any type of Investment that yields a regular (or fixed return A Corporate Bond is a bond issued by a Corporation. The term is usually applied to longer-term debt instruments generally with a maturity date falling at least a A government bond is a bond issued by a national government denominated in the country's own Currency. In the United States, a municipal bond (or muni) is a bond issued by a city or other local government or their agencies Bond valuation is the process of determining the Fair price of a bond. In Finance, a high yield bond ( non-investment grade bond, speculative grade bond or junk bond) is a bond that is rated below Software for Fixed assets management and Stock control developed in 2004. Preferred stock, also called preferred shares or preference shares, is typically a higher ranking stock than Voting shares, and its terms are negotiated A voting share (also called common stock or ordinary share) is a share of Stock giving the Stockholder the right to vote on matters A Registered share is a Stock that is registered on the name of the exact owner A voting share (also called common stock or ordinary share) is a share of Stock giving the Stockholder the right to vote on matters A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock The foreign exchange ( currency or forex or FX) market refers to the market for currencies. The derivatives markets are the Financial markets for derivatives The market can be divided into two that for exchange traded derivatives and that for In Finance, a credit derivative is a derivative whose value derives from the Credit risk on an underlying bond loan or other financial asset '"Hybrid securities"' often referred as "hybrids" are a broad group of securities that combine the elements of the two broader groups of securities Debt and Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future For the Thoroughbred horse racing champion see Swaps (horse. In finance a swap is a derivative in which two counterparties Commodity markets are markets where raw or primary products are exchanged In Finance, the money market is the global Financial market for short-term borrowing and lending Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom The spot market or cash market is a Commodities or Securities market in which goods are sold for Cash and delivered immediately The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to A market system is any systematic process enabling many Market players to Bid and ask: helping bidders and sellers interact and make deals Trade is the willing exchange of goods, services, or both Trade is also called Commerce. A corporation is a separate legal entity usually used to conduct business Software for Fixed assets management and Stock control developed in 2004. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments A security is a Fungible, Negotiable instrument representing financial value A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock

The expression "stock market" refers to the market that enables the trading of company stocks collective shares, other Security finance|securities, and Derivative finance|derivatives. Bonds are still traditionally traded in an informal, Over-the-counter finance|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 worldwide "bond market" is estimated at $45 trillion. The size of the stock market is estimated at about $51 trillion. The world derivatives market has been estimated at about $480 trillion face or nominal value, 30 times the size of the U. S. economy…and 12 times the size of the entire world economy. It must be noted though that the value of the derivatives market, because it is stated in terms of Notional amount|notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an Actual cash value|actual value. Many such relatively illiquid securities are valued as mark to model|marked to model, rather than an actual market price.

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 New York Stock Exchange|NYSE, the NASDAQ, the American Stock Exchange|Amex, as well as on the many regional exchanges, e. g. OTC Bulletin Board|OTCBB and Pink Sheets. European examples of stock exchanges include the Paris Bourse now part of Euronext, the London Stock Exchange and the Deutsche Borse.

Trading

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. A stock trader or a stock investor is an Individual or firm who buys and sells Stocks or bonds (and possibly other A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment In Finance, a trader is someone who buys and sells Financial instruments such as stocks, bonds and derivatives. 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. Open outcry is the name of a method of communication between professionals on a Stock exchange or Futures exchange which involves shouting and the use of hand 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.

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. "Auctioneer" redirects here For the DC Comics supervillain see Auctioneer (comics. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively. ) 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). A marketplace is the space actual or metaphorical in which a Market operates The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange is a physical exchange, also referred to as a listed exchange — only stocks listed with the exchange may be traded. The New York Stock Exchange ( NYSE) is a Stock exchange based in New York City. Orders enter by way of exchange members and flow down to a specialist, who goes to the floor trading post to trade stock. The New York Stock Exchange ( NYSE) is a Stock exchange based in New York City. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. The New York Stock Exchange ( NYSE) is a Stock exchange based in New York City. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading". Program trading is casually defined as the use of Computers in Stock markets to engage in Arbitrage and portfolio insurance strategies

The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The NASDAQ (acronym of National Association of Securities Dealers Automated Quotations) is an American Stock exchange. The process is similar to the New York Stock Exchange. 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. A market maker is a firm that quotes both a buy and a sell price in a Financial instrument or Commodity, hoping to make a profit on the turn [1].

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. The Paris Bourse (or "Bourse de Paris" in French) is the historical Paris Stock exchange, known as Euronext Paris from 2000 Euronext NV is a pan- European Stock exchange based in Paris and with subsidiaries in Belgium, France, Netherlands It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. A stock broker or stockbroker is a qualified and regulated professional who buys and sells shares and other securities through Market makers or In 1986, the CATS trading system was introduced, and the order matching process was fully automated. CATS (Computer Assisted Trading System is an automated exchange system developed for the Toronto Stock Exchange in 1977

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. and Credit Suisse Group, already steer 12 percent of U. S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 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 [citation needed].

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. The New York Stock Exchange ( NYSE) is a Stock exchange based in New York City. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions. A broker is a party that mediates between a Buyer and a Seller.

Market participants

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. g. , pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a Pension plan for the exclusive purpose of financing pension Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, A hedge fund is a private Investment fund open to a limited range of investors which is permitted by regulators to undertake a wider range of activities than other investment A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money The rise of the institutional investor has brought with it some improvements in market operations. Institutional investors are organizations which pool large sums of money and invest those sums in companies 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 very much adversely affected by the rise of (largely 'absentee') institutional 'owners'. Corporate governance is the set of Processes customs Policies, laws and institutions affecting the way a Corporation is directed administered or controlled

History

Historian Fernand Braudel suggests that in Cairo in the 11th century Muslim and Jewish merchants had already set up every form of trade association and had knowledge of many methods of credit and payment, disproving the belief that these were invented later by Italians. Fernand Braudel ( August 24 1902 &ndash November 27 1985) was the foremost French historian of the postwar era Cairo () which means "the Vanquisher" or "the Triumphant" is the capital and largest city of Egypt. The Radhanites (also Radanites, Hebrew sing רדהני Radhani, pl An industry trade group, also known as a trade association, is an organization founded and funded by Businesses that operate in a specific Industry. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. This article is about the country For a topic outline on this subject see List of basic France topics. Because these men also traded with debts, they could be called the first brokers. A stock broker or stockbroker is a qualified and regulated professional who buys and sells shares and other securities through Market makers or In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting. Bruges (Brugge is the capital and largest city of the province of West Flanders in the Flemish Region of Belgium. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam. Flanders (Vlaanderen Flandre Flandern is a geographical region located in parts of present day Belgium, France, and the Netherlands. Ghent (ˈɡɛnt Gent ʝɛnt in Dutch, Gand in French, and formerly Gaunt in English) is a City and a Amsterdam (pronounced) is the capital and largest city of the Netherlands, located in the province of North Holland in the west

In the middle of the 13th century Venetian bankers began to trade in government securities. Venice ( Italian: Venezia, Venetian: Venesia or Venexia) is a city in Northern Italy, the capital of the In 1351 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. Pisa is a city in Tuscany, central Italy, on the right bank of the mouth of the Arno River on the Ligurian Sea. Verona is a city and provincial capital in Veneto, Northern Italy. Genoa ( Genova, ˈdʒɛːnova in Italian; Zena in Genoese and Ligurian; Genua in Latin and archaically in English Florence ( Italian: Firenze Florentia and Fiorenza) is the Capital City of the Italian region of Tuscany 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. A joint stock company (JSC is a type of business entity it is a type of Corporation or Partnership. A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. The Dutch East India Company ( Vereenigde Oost-Indische Compagnie or VOC in old-spelling Dutch, literally "United East Indian This entry is on the Amsterdam Stock Exchange before it merged into Euronext. 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. This entry is on the Amsterdam Stock Exchange before it merged into Euronext. As a means of recording the passage of Time, the 17th Century was that Century which lasted from 1601 - 1700 in the Gregorian calendar 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. In Finance, short selling or "shorting" is the practice of selling a Financial instrument that the seller borrows first (does not own and then An option strategy is implemented by combining one or more option positions and possibly an Underlying stock position In banking, a merchant bank is a financial institution primarily engaged in international finance and long-term loans for multinational corporations and governments In Common law legal systems a trust is an arrangement whereby Property (including real tangible and intangible is managed by one person (or persons or organizations Speculation, in a financial context is making an investment that increases the overall risk in a portfolio 7, April 5, 2001). Events 456 - St Patrick returns to Ireland as a missionary bishop Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar. There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, Canada, China (Hongkong), India, UK, Germany, France and Japan^[1]. The United States of America —commonly referred to as the Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page Hong Kong ( officially the Hong Kong Special Administrative Region, is a territory located on China 's south coast on the Pearl River Delta, and borders India, officially the Republic of India (भारत गणराज्य inc-Latn Bhārat Gaṇarājya; see also other Indian languages) is a country The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located Germany, officially the Federal Republic of Germany ( ˈbʊndəsʁepuˌbliːk ˈdɔʏtʃlant is a Country in Central Europe. This article is about the country For a topic outline on this subject see List of basic France topics. For a topic outline on this subject see List of basic Japan topics.

The Bombay Stock Exchange in India. The Bombay Stock Exchange Limited (मुंबई शेयर बाज़ार Mumbaī Śeyar Bājār) (formerly The Stock Exchange Mumbai; popularly called India, officially the Republic of India (भारत गणराज्य inc-Latn Bhārat Gaṇarājya; see also other Indian languages) is a country

Importance of stock market

Function and purpose

The stock market is one of the most important sources for companies to raise money. Generally a company is a form of Business organization. The precise definition varies Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. Market liquidity is a Business, Economics or Investment term that refers to an Asset 's ability to be easily converted through an act of buying This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom

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. In financial markets, a share is a Unit of account for various financial instruments including Stocks Mutual funds Limited partnerships 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. A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Financial stability is the raison d'être 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 counterparty could default on the transaction. A counterparty (sometimes contraparty) is a legal and financial term

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. Economic growth is the increase in the amount of the goods and services produced by an economy over time In this way the financial system contributes to increased prosperity.

Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. In Economics, disintermediation is the removal of intermediaries in a Supply chain: "cutting out the middleman" 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. A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. Statistics is a mathematical science pertaining to the collection analysis interpretation or explanation and presentation of Data. In the 1970s, 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 2000s. "Sverige" redirects here For other uses see Sweden (disambiguation and Sverige (disambiguation. A deposit account is a current account at a Banking institution that allows money to be deposited and withdrawn by the account holder with the transactions and resulting balance 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. In finance a portfolio is an appropriate mix of or collection of investments held by an institution or a private individual 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. Similar tendencies are to be found in other industrialized countries. The term developed country, or advanced country, is used to categorize countries with developed Economies in which the tertiary and quaternary sectors 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. The European Union ( EU) is a political and economic union of twenty-seven member states, located primarily in The United States of America —commonly referred to as the For a topic outline on this subject see List of basic Japan topics.

The stock market, individual investors, and financial risk

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. e. , real estate and collectables). For the record label see Collectables Records For the Ashanti album see Collectables by Ashanti A collectable

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 there 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 long-term value-oriented stock investor Warren Buffett. A stock trader or a stock investor is an Individual or firm who buys and sells Stocks or bonds (and possibly other Warren Buffett (born August 30 1930 is an American Investor, Businessman, and Philanthropist. ^[2] Buffett began his career with $100, and $105,000 from seven limited partners consisting of Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune. 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.

The behavior of the stock market

NASDAQ in Times Square, New York City. The NASDAQ (acronym of National Association of Securities Dealers Automated Quotations) is an American Stock exchange. The City of New York

From experience we know that investors may temporarily pull financial prices away from their long term trend level. Over-reactions 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 (EMH), only 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 in 1987, when the Dow Jones index plummeted 22. In financial markets Black Monday refers to Monday, October 19, 1987, when Stock markets around the world crashed, shedding a Dow Jones & Company is an American publishing and financial information firm 6 percent—the largest-ever one-day fall in the United States. This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix a definite cause: a thorough search failed to detect any specific or unexpected development that might account for the crash. 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. ^[3] Moreover, while the 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 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. Value at Risk (VaR is a maximum tolerable loss that could occur with a given probability within a given period of time

Other research has shown that psychological factors may result in exaggerated stock price movements. Behavioral economics and behavioral finance are closely related fields which apply scientific research on human and social cognitive and emotional factors to better 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. ^[4]

Another phenomenon—also from psychology—that works against an objective assessment is group thinking. Groupthink is a type of thought exhibited by group members who try to minimize conflict and reach consensus without critically testing analyzing and evaluating ideas 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 gambling. ^[5] 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. In the period running up to the recent Nasdaq crash, less than 1 per cent of the analyst's recommendations had been to sell (and even during the 2000 - 2002 crash, the average did not rise above 5%). The NASDAQ (acronym of National Association of Securities Dealers Automated Quotations) is an American Stock exchange. 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 new economy stock market. The New Economy was an evolution of developed countries from an industrial/manufacturing-based wealth producing economy into a Service sector Asset based economy (And later amplified the gloom which descended during the 2000 - 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common. )

Irrational behavior

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, euphoria and mass panic. Mass hysteria, also called collective hysteria, mass psychogenic illness, or collective obsessional behavior, is the sociopsychological

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.

Crashes

Robert Shiller's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest Rates, from Irrational Exuberance, 2d ed. Robert James "Bob" Shiller (born 1946 is an American economist academic and best-selling author For other uses of the term Irrational exuberance, see the Irrational exuberance (disambiguation article ^[6] In the preface to this edition, Shiller warns that "[t]he 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 Robert Shiller (Figure 10. Robert James "Bob" Shiller (born 1946 is an American economist academic and best-selling author 1^[6], source). The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Index 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. See also ten-year returns. Shiller states that this plot "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. "^[6]

Main article: Stock market crash

A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. A stock market crash is a sudden dramatic decline of Stock prices across a significant cross-section of a Stock market. A share price is the price of a single share of a company's Stock. Software for Fixed assets management and Stock control developed in 2004. A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock In parallel with various economic factors, a reason for stock market crashes is also due to panic. An economy is the realized social system of production exchange distribution and consumption of goods and services of a country or other area Often, stock market crashes end up with speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale. A stock market crash is a sudden dramatic decline of Stock prices across a significant cross-section of a Stock market. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. Social security primarily refers to a Social insurance program providing social protection or protection against socially recognized conditions including poverty old A retirement plan is an arrangement to provide people with an income or Pension, during Retirement, when they are no longer earning a steady income from employment Software for Fixed assets management and Stock control developed in 2004. BOND (Building Object Network Databases started development in late 2000 as a Rapid application development tool for the GNOME Desktop by Treshna There have been a number of famous stock market crashes like the Wall Street Crash of 1929, the stock market crash of 1973–4, the Black Monday of 1987, the Dot-com bubble of 2000. The Wall Street Crash of 1929, also known as the ’29 Crash, the Crash of 1929, the Great Crash of 1929, the Great Crash of October 1929 The stock market crash of 1973–4 was a Stock market crash that lasted between January 1973 and December 1974 In financial markets Black Monday refers to Monday, October 19, 1987, when Stock markets around the world crashed, shedding a The " dot-com bubble " (or sometimes the " IT bubble " was a speculative bubble covering roughly 1995–2001 (with a climax on March 10 But those stock market crashes did not begin in 1929, or 1987. They actually started years or months before the crash really hit hard.

One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50% during this stock market crash. The Dow Jones Industrial Average ( also called the DJIA, Dow 30, INDP, or informally the Dow Jones or The Dow) is one of several It was the beginning of the Great Depression. Another famous crash took place on October 19, 1987 – Black Monday. On Black Monday itself, the Dow Jones fell by 22. 6% after completing a 5 year continuous rise in share prices. This event not only shook the USA, but quickly spread across the world. Thus, by the end of October, stock exchanges in Australia lost 41. 8%, Canada lost 22. 5%, Hong Kong lost 45. 8% and Great Britain lost 26. 4%. Names “Black Monday” and “Black Tuesday” are also used for October 28-29,1929, which followed Terrible Thursday – starting day of the stock market crash in 1929. The crash in 1987 raised some mysticism – main news or events did not predict the catastrophe and visible reasons for the collapse were not identified. This event had put many important assumptions, of modern economics, under uncertainty, namely, the theory of rational conduct of human being, the theory of market equilibrium and the hypothesis of market efficiency. Economics is the social science that studies the production distribution, and consumption of goods and services. Rational choice theory, also known as rational action theory, is a framework for understanding and often formally modeling social and economic behavior General equilibrium theory is a branch of theoretical Microeconomics. For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange's computers did not perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the Federal Reserve system 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. 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 New York Stock Exchange and the Chicago Mercantile Exchange 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.

Stock market index

Main article: Stock market index

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. A stock market index is a method of measuring a section of the Stock market. A stock market index is a method of measuring a section of the Stock market. g. , the S&P, the FTSE and the Euronext indices. Standard & Poor's ( S&P) is a division of McGraw-Hill that publishes financial research and analysison Stocks and bonds. Euronext NV is a pan- European Stock exchange based in Paris and with subsidiaries in Belgium, France, Netherlands 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. Market capitalization/capitalisation (aka market cap, mkt cap or capitalized/capitalised value) is a measurement of Corporate or Economic Floating capital denotes Currency in circulation and also Assets which are movable and storable The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.

Derivative instruments

Main article: Derivative (finance)

Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments Some examples are exchange-traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. An exchange-traded fund (or ETF) is an investment vehicle traded on Stock exchanges much like Stocks. A stock market index is a method of measuring a section of the Stock market. Options are financial instruments that convey the right but not the obligation to engage in a future transaction on some Underlying security, or in a Futures An equity swap is a swap where a set of future cash flows are exchanged between two counterparties Single-stock futures (SSF's are Futures contracts with the underlying asset being one particular stock usually in batches of 100 In Finance, a futures contract is a standardized Contract, traded on a Futures exchange, to buy or sell a certain Underlying instrument These last two may be traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commodities futures exchanges), or traded over-the-counter. A futures exchange is a central financial exchange where people can trade standardized Futures contracts; that is a contract to buy specific quantities of a Commodity A commodity is anything for which there is demand but which is supplied without qualitative differentiation across a market Over-the-counter ( OTC) trading is to Trade Financial instruments such as Stocks bonds, commodities or derivatives 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. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments The derivatives markets are the Financial markets for derivatives The market can be divided into two that for exchange traded derivatives and that for

Leveraged Strategies

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 Finance, short selling or "shorting" is the practice of selling a Financial instrument that the seller borrows first (does not own and then In finance a margin is collateral that the holder of a position in securities, options, or Futures contracts has to deposit to cover Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments

Short selling

Main article: Short selling

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. In Finance, short selling or "shorting" is the practice of selling a Financial instrument that the seller borrows first (does not own and then 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. " This strategy may also be used by unscrupulous traders 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 naked shorting is illegal in most (but not all) stock markets. Naked short selling, or naked shorting, is the practice of selling a stock short, without first borrowing the shares or ensuring that the shares can be borrowed as

Margin buying

Main article: margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. In finance a margin is collateral that the holder of a position in securities, options, or Futures contracts has to deposit to cover 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 Federal Reserve) was implemented after the Crash of 1929. The Wall Street Crash of 1929, also known as the ’29 Crash, the Crash of 1929, the Great Crash of 1929, the Great Crash of October 1929 Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. 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: Thomson Financial league tables

Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a 29. Thomson Financial 's standard league tables are rankings of Investment Banks in terms of the dollar volume of deals they work on 8% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased 221% with 233 offerings that raised $45 billion, and IPOs in Europe, Middle East and Africa (EMEA) increased by 333%, from $ 9 billion to $39 billion. Initial public offering (IPO, also referred to simply as a "public offering" is when a company issues Common stock or shares to the public for the first Europe the Middle East and Africa, usually abbreviated to EMEA, is a regional designation used for government marketing and business purposes

Investment strategies

Main article: Stock valuation

One of the many things people always want to know about the stock market is, "How do I make money investing?" There are many different approaches; two basic methods are classified as either fundamental analysis or technical analysis. Fundamental analysis of a business involves analyzing its Financial statements and health its management and competitive advantages and its Competitors and Technical analysis is a Financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings, business trends, general economic conditions, etc. Fundamental analysis of a business involves analyzing its Financial statements and health its management and competitive advantages and its Competitors and Financial statements (or financial reports) are formal records of a business' financial An SEC filing is a Financial statement or other formal document submitted to the U 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. Technical analysis is a Financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market 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. In Finance, trend following is an Investment strategy that tries to take advantage of long-term moves that seem to play out in various markets. Early life Henry's parents were farmers and he split his time growing up between Illinois and Arkansas. Edward Arthur Seykota (born August 7, 1946) is a commodities trader, who earned BSc degrees in both Electrical Engineering For non-business risks see Risk or the disambiguation page Risk analysis. Diversification in Finance is a Risk management technique related to hedging, that mixes a wide variety of investments within a portfolio.

Additionally, many choose to invest via the index method. An index fund or index tracker is a Collective investment scheme (usually a Mutual fund or Exchange-traded fund) that aims to replicate the movements of 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 S&P 500 or Wilshire 5000). The S&P 500 is a Stock market index containing the stocks of 500 Large-Cap Corporations all of which are from the United States. The Dow Jones Wilshire 5000 Composite Index, more simply the Dow Jones Wilshire 5000, is a Market capitalization -weighted index of the market value of 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%/year, compounded annually, since World War II).

Taxation

Main article: Capital gains tax

According to each national or state legislation, a large array of fiscal obligations must be respected regarding capital gains, and taxes are charged by the state over the transactions, dividends and capital gains on the stock market, in particular in the stock exchanges. A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased A stock exchange, share market or bourse is a Corporation or Mutual organization which provides "trading" facilities for Stock However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock market operations are useful to boost economic growth. A share price is the price of a single share of a company's Stock. Economic growth is the increase in the amount of the goods and services produced by an economy over time

See also

Lists

References

External links

• Stock exchanges at the Open Directory Project
• Stocks investing at the Open Directory Project