You can buy and sell any stock over the Internet that is online stock trading, you don't need to call up a broker. You can do online stock trading with a minimal investment you should get started today and then start learning about the stock market and choose the stocks you want to invest in.
Day Trading
Day trading is defined as the buying and selling of a security within a single trading day. It is designed to produce short-term profits. Day trading demands access to some of the most complex and sophisticated financial services and instruments in the markets. Trading with a stop-loss is extremely important for all traders to cut losses while they are still small, and to preserve their trading capital in case the market moves against their trade. Trading at certain times of the day is simply not profitable and in fact is highly risky. Day trading involves taking advantage of price movements in stocks within one trading day. Day trading strategies demand the use of leveraged or borrowed money to make profits. Day trading used to be the sole preserve of financial firms and professional investors and speculators. Day trading is however a mentally and psychologically challenging activity and is by no means meant for everyone. If you can't be highly disciplined and stick by predetermined selling points, day trading is not for you.
What is Technical Analysis?
Day trading is defined as the buying and selling of a security within a single trading day and market directions based on statistical analysis of variables such as trading volume, price changes, etc., to identify patterns. Research and examination of the market and securities as it relates to their supply and demand in the marketplace. The technician uses charts and computer programs to identify and project price trends. Now technical analysis has become increasingly popular. Technical analysts use their findings to predict probable, often short-term, trading patterns in the investments that they study. It suppose markets have memory. If so, past prices, or the current price momentum, can give an idea of the future price evolution.
What is Fundamental Analysis?
Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security. It is scientific study of the basic factors which determine a share's value. The analyst studies the industry and the company's sales, assets, liabilities, debt structure, earnings, products, market share; evaluates the company's management, compares the company with its competitors, and then estimates the share's intrinsic worth. More effective in fulfilling long - term growth objectives of shares, rather than their short - term price fluctuations.
The truth of the matter is that the market is a game of money flow played by the big players as they move money around from stocks, to options, to financial futures, and back and forth in a number of different ways, all in the pursuit of greed and large profits. And remember, I previously mentioned that "a good portion of that money is being made off the backs of the uninformed individual stock trader and investor who blindly trades and invests in the stock market today." The principle in the markets is "Buy when everyone else sells and sell when everyone else buys". Investors should know that when buying a stock they are simply buying ownership in the companies.
Thursday, February 26, 2009
Ten Rules on How to Invest on Success
For those who are avid readers of this site know that the Investors Business Daily or most commonly known as IBD, the financial publication mentored by William O’ Neil, is an indispensable tool for making and learning progress in investing.
Success in investment means diverse things to all kinds of people. O’ Neil and his group of portfolio managers accomplish success perhaps the way other people can’t. Having to manage someone else’s money, work as a trader for somebody else is totally dissimilar from having to manage you own, or having to invest the assets of your family.
The sole aim of this commentary is to give a precise way to learn the rules of investing and getting result from you investment.As the Bible would have its ten commandments, here are the ten most important investment rules laid out for you.
Rule One. Market Uptrend is Investment Append. This means you have the say. Just simply reading some key sections like the “Big Picture” in IBD on a day-to-day basis shall really facilitate this.
Rule Two. You should be focusing on what to buy. This recommends that you consider only those companies having unyielding earnings growth for the precedent three years, who have intensive sales income, with current quarterly earnings high above than their peers.
Rule 3. Focus now on what time to buy. You should be able to read charts, and know how to spot buy points. It also suggests that one should purchase stocks only when they are ranging 3-5% beginning on their buy point, and never buy when the price goes beyond more than 5% o their model buy point.
Rule 4. Focus now on which one to hold. Stocks in your portfolio need to execute. This is for the reason that if one stock does well, it can be a contender for accumulation; you should be able to identify which stock to keep and which one to let go..
Rule 5. The hardest rule of all. This suggests is derived from O’Neil saying that one should vend any stock that moves down to 7-8% under the main purchase price. So knowing which kinds of stocks to handle is a big help.
Rule 6. This rule suggests that one should not acquire stocks when they are way behind. One should keep away from buying stocks with high dividends, oversimplified criteria, small price-earning ratios, and that are cheap.
Rule 7. This rule suggests that the amount you will invest on (no matter the cost) should be divided proportionately amid 5 to 7 stocks. Once you are aware of the amount you should place in every stock, calculate the amount of shares it can allow for every stock.
Rule 8. This rule shall tell you how stocks are accumulated. Do investment in stages: buy first, and if it does well, add further shares.
Rule 9. This is the opposite of the last rule. While a stock goes down, it is a high moment to sell 50% of your shares.
Rule 10. This rule recommends that you check on what you are doing on a customary basis. Assess and re-assess.
Success in investment means diverse things to all kinds of people. O’ Neil and his group of portfolio managers accomplish success perhaps the way other people can’t. Having to manage someone else’s money, work as a trader for somebody else is totally dissimilar from having to manage you own, or having to invest the assets of your family.
The sole aim of this commentary is to give a precise way to learn the rules of investing and getting result from you investment.As the Bible would have its ten commandments, here are the ten most important investment rules laid out for you.
Rule One. Market Uptrend is Investment Append. This means you have the say. Just simply reading some key sections like the “Big Picture” in IBD on a day-to-day basis shall really facilitate this.
Rule Two. You should be focusing on what to buy. This recommends that you consider only those companies having unyielding earnings growth for the precedent three years, who have intensive sales income, with current quarterly earnings high above than their peers.
Rule 3. Focus now on what time to buy. You should be able to read charts, and know how to spot buy points. It also suggests that one should purchase stocks only when they are ranging 3-5% beginning on their buy point, and never buy when the price goes beyond more than 5% o their model buy point.
Rule 4. Focus now on which one to hold. Stocks in your portfolio need to execute. This is for the reason that if one stock does well, it can be a contender for accumulation; you should be able to identify which stock to keep and which one to let go..
Rule 5. The hardest rule of all. This suggests is derived from O’Neil saying that one should vend any stock that moves down to 7-8% under the main purchase price. So knowing which kinds of stocks to handle is a big help.
Rule 6. This rule suggests that one should not acquire stocks when they are way behind. One should keep away from buying stocks with high dividends, oversimplified criteria, small price-earning ratios, and that are cheap.
Rule 7. This rule suggests that the amount you will invest on (no matter the cost) should be divided proportionately amid 5 to 7 stocks. Once you are aware of the amount you should place in every stock, calculate the amount of shares it can allow for every stock.
Rule 8. This rule shall tell you how stocks are accumulated. Do investment in stages: buy first, and if it does well, add further shares.
Rule 9. This is the opposite of the last rule. While a stock goes down, it is a high moment to sell 50% of your shares.
Rule 10. This rule recommends that you check on what you are doing on a customary basis. Assess and re-assess.
Stock Exchange - Everyday Trading On The Stock Exchange
The stock markets are pretty unpredictable. One minute you could be excited and encouraged thanks to the fact that the stocks you invested in are booming, and the next you could be broken because the bull run reversed and the stock fell even lower than it started.
Obviously, a profit or a loss is calculated by comparing the prices of purchase and sales of the stocks.
Stock exchange trades usually are done in the day. This is because of the assumption that it is during the day, that most of the big companies around the world normally conduct business transactions.
As the saying goes, a work day cant ever be too long for stock trades. It is a common feeling that a work day is too short to negotiate all trades you wished to.
Stock trade transactions
Prior to the purchase and sale of stocks,one is expected to do some homework, meaning do some background checks on the companies you are planning to invest into.
The choice is solely yours, where you put your money in, or if you take out investment from a particular stock. Make sure you have a well thought out decision because your profits of commercial transactions will be based on this.
When you buy securities, you should inform your brokerage partner on your intention and the amount you would like to buy, on whatever stock.Make sure you have all adequate information on your choice of stock.
What good would it do to invest in a company on the edge of bankruptcy?
.Your money would soon disappear with the company's losses.
Evolution
In a time span of over 4 centuries, trading has gradually evolved to be a safer and better tool for investment.
Within this short period, the stock markets of Commerce have emerged as the largest and most widely used investment strategy in the world, across every market, from the third world to the American economy.
Any country's average economic performance is today judged and evaluated on the basis of how its local stock market trading or exchange is doing. This system of research in the economy should proliferate and spread over time.
Every day, as mentioned earlier, brings fresh threats and promises of new markets for stocks on the Exchange. Trading is not similar to trading the previous day.
Every day is just as promising and just as risk prone as the other day in the stock market. But one thing is certain, when you face a terrible day, you still have the hope that tomorrow will bring success.
This is one of the beauties of the rapid and happening stock trades exchange. Go ahead, try your own hand at it.
Obviously, a profit or a loss is calculated by comparing the prices of purchase and sales of the stocks.
Stock exchange trades usually are done in the day. This is because of the assumption that it is during the day, that most of the big companies around the world normally conduct business transactions.
As the saying goes, a work day cant ever be too long for stock trades. It is a common feeling that a work day is too short to negotiate all trades you wished to.
Stock trade transactions
Prior to the purchase and sale of stocks,one is expected to do some homework, meaning do some background checks on the companies you are planning to invest into.
The choice is solely yours, where you put your money in, or if you take out investment from a particular stock. Make sure you have a well thought out decision because your profits of commercial transactions will be based on this.
When you buy securities, you should inform your brokerage partner on your intention and the amount you would like to buy, on whatever stock.Make sure you have all adequate information on your choice of stock.
What good would it do to invest in a company on the edge of bankruptcy?
.Your money would soon disappear with the company's losses.
Evolution
In a time span of over 4 centuries, trading has gradually evolved to be a safer and better tool for investment.
Within this short period, the stock markets of Commerce have emerged as the largest and most widely used investment strategy in the world, across every market, from the third world to the American economy.
Any country's average economic performance is today judged and evaluated on the basis of how its local stock market trading or exchange is doing. This system of research in the economy should proliferate and spread over time.
Every day, as mentioned earlier, brings fresh threats and promises of new markets for stocks on the Exchange. Trading is not similar to trading the previous day.
Every day is just as promising and just as risk prone as the other day in the stock market. But one thing is certain, when you face a terrible day, you still have the hope that tomorrow will bring success.
This is one of the beauties of the rapid and happening stock trades exchange. Go ahead, try your own hand at it.
Top 5 Rules of Stock Trading
This article is for those who had some experience in stock picking and who have been through the agony or the thrills of losing or gaining money.
The very fact of stock trading is presence of emotions of losing money and risks associated with it.
None of the high money making instruments can guarantee you no risks. High risk means high gains and high losses as well. But there are some rules of stock trading which should be followed as they come from experience of traders rather than just a walk down the Wall Street rule book Here are the rules:
1. First and foremost decide what trade you are playing for. Is it a Buy today sells tomorrow? Is it a Long term bet on economy? Is it the merger and acquisition 5 % gain that you are playing for? Is it pure momentum play?
2. There is an unsaid rule which all the best on the street know and it is cut your losses and get out rather than being emotional about your trade. It is a trade and your reputation is not at stake. You can't be right all the times. The market is supreme.
3. Whenever you are making money have a realistic goal. A 17 % earning on a per year basis is a fantastic bet and one should not be greedy to just hold on to it till it doubles. Always take the profits and let others also make profits on the stocks.
4. Always have money for your immediate requirements and only after you have allocated for the insurance and household savings, should you be betting in the stock market. Never try to bet with the money you had saved for Buying your House.
5. Always buy on negative news and sell on good news. Market always discounts the future. Never try to play on news since the market has already discounted the news and you could be surprised to be a late entrant.With this we come to an end of the article "The 5 most important rules of stock trading".
The very fact of stock trading is presence of emotions of losing money and risks associated with it.
None of the high money making instruments can guarantee you no risks. High risk means high gains and high losses as well. But there are some rules of stock trading which should be followed as they come from experience of traders rather than just a walk down the Wall Street rule book Here are the rules:
1. First and foremost decide what trade you are playing for. Is it a Buy today sells tomorrow? Is it a Long term bet on economy? Is it the merger and acquisition 5 % gain that you are playing for? Is it pure momentum play?
2. There is an unsaid rule which all the best on the street know and it is cut your losses and get out rather than being emotional about your trade. It is a trade and your reputation is not at stake. You can't be right all the times. The market is supreme.
3. Whenever you are making money have a realistic goal. A 17 % earning on a per year basis is a fantastic bet and one should not be greedy to just hold on to it till it doubles. Always take the profits and let others also make profits on the stocks.
4. Always have money for your immediate requirements and only after you have allocated for the insurance and household savings, should you be betting in the stock market. Never try to bet with the money you had saved for Buying your House.
5. Always buy on negative news and sell on good news. Market always discounts the future. Never try to play on news since the market has already discounted the news and you could be surprised to be a late entrant.With this we come to an end of the article "The 5 most important rules of stock trading".
Ten Rules on How to Invest on Success
For those who are avid readers of this site know that the Investors Business Daily or most commonly known as IBD, the financial publication mentored by William O’ Neil, is an indispensable tool for making and learning progress in investing.
Success in investment means diverse things to all kinds of people. O’ Neil and his group of portfolio managers accomplish success perhaps the way other people can’t. Having to manage someone else’s money, work as a trader for somebody else is totally dissimilar from having to manage you own, or having to invest the assets of your family.
The sole aim of this commentary is to give a precise way to learn the rules of investing and getting result from you investment.
As the Bible would have its ten commandments, here are the ten most important investment rules laid out for you.
Rule One. Market Uptrend is Investment Append. This means you have the say. Just simply reading some key sections like the “Big Picture” in IBD on a day-to-day basis shall really facilitate this.
Rule Two. You should be focusing on what to buy. This recommends that you consider only those companies having unyielding earnings growth for the precedent three years, who have intensive sales income, with current quarterly earnings high above than their peers.
Rule 3. Focus now on what time to buy. You should be able to read charts, and know how to spot buy points.
It also suggests that one should purchase stocks only when they are ranging 3-5% beginning on their buy point, and never buy when the price goes beyond more than 5% o their model buy point.Rule 4. Focus now on which one to hold. Stocks in your portfolio need to execute. This is for the reason that if one stock does well, it can be a contender for accumulation; you should be able to identify which stock to keep and which one to let go.
.Rule 5. The hardest rule of all. This suggests is derived from O’Neil saying that one should vend any stock that moves down to 7-8% under the main purchase price. So knowing which kinds of stocks to handle is a big help.
Rule 6. This rule suggests that one should not acquire stocks when they are way behind. One should keep away from buying stocks with high dividends, oversimplified criteria, small price-earning ratios, and that are cheap.
Rule 7. This rule suggests that the amount you will invest on (no matter the cost) should be divided proportionately amid 5 to 7 stocks. Once you are aware of the amount you should place in every stock, calculate the amount of shares it can allow for every stock.
Rule 8. This rule shall tell you how stocks are accumulated. Do investment in stages: buy first, and if it does well, add further shares.
Rule 9. This is the opposite of the last rule. While a stock goes down, it is a high moment to sell 50% of your shares.
Rule 10. This rule recommends that you check on what you are doing on a customary basis. Assess and re-assess.
Success in investment means diverse things to all kinds of people. O’ Neil and his group of portfolio managers accomplish success perhaps the way other people can’t. Having to manage someone else’s money, work as a trader for somebody else is totally dissimilar from having to manage you own, or having to invest the assets of your family.
The sole aim of this commentary is to give a precise way to learn the rules of investing and getting result from you investment.
As the Bible would have its ten commandments, here are the ten most important investment rules laid out for you.
Rule One. Market Uptrend is Investment Append. This means you have the say. Just simply reading some key sections like the “Big Picture” in IBD on a day-to-day basis shall really facilitate this.
Rule Two. You should be focusing on what to buy. This recommends that you consider only those companies having unyielding earnings growth for the precedent three years, who have intensive sales income, with current quarterly earnings high above than their peers.
Rule 3. Focus now on what time to buy. You should be able to read charts, and know how to spot buy points.
It also suggests that one should purchase stocks only when they are ranging 3-5% beginning on their buy point, and never buy when the price goes beyond more than 5% o their model buy point.Rule 4. Focus now on which one to hold. Stocks in your portfolio need to execute. This is for the reason that if one stock does well, it can be a contender for accumulation; you should be able to identify which stock to keep and which one to let go.
.Rule 5. The hardest rule of all. This suggests is derived from O’Neil saying that one should vend any stock that moves down to 7-8% under the main purchase price. So knowing which kinds of stocks to handle is a big help.
Rule 6. This rule suggests that one should not acquire stocks when they are way behind. One should keep away from buying stocks with high dividends, oversimplified criteria, small price-earning ratios, and that are cheap.
Rule 7. This rule suggests that the amount you will invest on (no matter the cost) should be divided proportionately amid 5 to 7 stocks. Once you are aware of the amount you should place in every stock, calculate the amount of shares it can allow for every stock.
Rule 8. This rule shall tell you how stocks are accumulated. Do investment in stages: buy first, and if it does well, add further shares.
Rule 9. This is the opposite of the last rule. While a stock goes down, it is a high moment to sell 50% of your shares.
Rule 10. This rule recommends that you check on what you are doing on a customary basis. Assess and re-assess.
The Stock Market Drop - How to Make Money in a Tough Economy
Imagine your friends laughing when you say you made a lot of money as the stock market dropped. Then imagine their faces when you show them your incredible gains. They won't laugh any more. They'll beg for help.
Everybody loves it when the stock market goes up. Many people panic when it falls. But they don't need to. An American market exists that allows traders to make money regardless of whether stocks are going up or down.Professional investors know how to hedge their bet. They take precautions because they know the economy will move through various cycles. What goes up will eventually come down.
The common man and woman are different. They assume investing is difficult so they don't take time to learn simple methods that might benefit their lifelong effort to get ahead. They throw their money into mutual funds or a 401-K account and hope for the best. This may work when things are going well in the financial markets. In a crisis, this method will be the cause of many a sleepless night.
Every family could use some extra money each month. And it's not a pipe dream, if you are capable of taking simple direction and absorbing new information.
Here's how you to make money when the stock market falls: hedge your bet by trading the mini-sized Dow Jones futures market.
I know what you're thinking. Futures?! Isn't that a great way to lose money? My answer: Have you ever lost money in the stock market?Today's economic conditions should be a reminder that our money is always at risk. Yesterday's victories may be tomorrow's defeats. All the more reason to hedge - always - your most important investments.
The mini-sized Dow Jones electronic market is global and stays open for business throughout the night and into the next day. It closes briefly at the end of each business day, all day Saturday, then opens again late Sunday afternoon. Plenty of time to access and manage your online account.
One significant reason for learning this market is its simplicity. You can learn to trade the market up and down - and it's all legal. For people who have only traded stocks, it is sometimes difficult to understand how a futures trader can make money when a market drops. But it's true, it can be done, without breaking any laws.
This is not true of some "short selling" that takes place in the stock market. Some rogue brokerages break Securities and Exchange Commission rules and in the process rob good, honest investors. That is not what I'm suggesting. But that illegal practice is precisely why you would be wise to learn how to hedge your stock portfolio with the mini-sized Dow Jones futures market.
There are many tutorials to help you understand how to trade this market. Google "mini-sized Dow Jones" or "the mini-Dow" and you'll have plenty to choose from.
But don't fall for offers that ask you to pay big bucks for software and platforms you won't need. I'm not suggesting you day trade - not at first anyway. So choose a guidebook that is modestly priced and then learn as much as you can from it before buying your next book.
The Chicago Board of Trade and the CME Group Exchange websites offer good, free information to help you understand the basics of trading futures. Take full advantage.Finally, be a specialist. Master the one market that can do you the most good. The mini-sized Dow Jones stock index will be enormously beneficial if you have long-term or short-term stock investments. You'll soon realize that by concentrating on one market you don't have to be Warren Buffet to make smart moves.
Everybody loves it when the stock market goes up. Many people panic when it falls. But they don't need to. An American market exists that allows traders to make money regardless of whether stocks are going up or down.Professional investors know how to hedge their bet. They take precautions because they know the economy will move through various cycles. What goes up will eventually come down.
The common man and woman are different. They assume investing is difficult so they don't take time to learn simple methods that might benefit their lifelong effort to get ahead. They throw their money into mutual funds or a 401-K account and hope for the best. This may work when things are going well in the financial markets. In a crisis, this method will be the cause of many a sleepless night.
Every family could use some extra money each month. And it's not a pipe dream, if you are capable of taking simple direction and absorbing new information.
Here's how you to make money when the stock market falls: hedge your bet by trading the mini-sized Dow Jones futures market.
I know what you're thinking. Futures?! Isn't that a great way to lose money? My answer: Have you ever lost money in the stock market?Today's economic conditions should be a reminder that our money is always at risk. Yesterday's victories may be tomorrow's defeats. All the more reason to hedge - always - your most important investments.
The mini-sized Dow Jones electronic market is global and stays open for business throughout the night and into the next day. It closes briefly at the end of each business day, all day Saturday, then opens again late Sunday afternoon. Plenty of time to access and manage your online account.
One significant reason for learning this market is its simplicity. You can learn to trade the market up and down - and it's all legal. For people who have only traded stocks, it is sometimes difficult to understand how a futures trader can make money when a market drops. But it's true, it can be done, without breaking any laws.
This is not true of some "short selling" that takes place in the stock market. Some rogue brokerages break Securities and Exchange Commission rules and in the process rob good, honest investors. That is not what I'm suggesting. But that illegal practice is precisely why you would be wise to learn how to hedge your stock portfolio with the mini-sized Dow Jones futures market.
There are many tutorials to help you understand how to trade this market. Google "mini-sized Dow Jones" or "the mini-Dow" and you'll have plenty to choose from.
But don't fall for offers that ask you to pay big bucks for software and platforms you won't need. I'm not suggesting you day trade - not at first anyway. So choose a guidebook that is modestly priced and then learn as much as you can from it before buying your next book.
The Chicago Board of Trade and the CME Group Exchange websites offer good, free information to help you understand the basics of trading futures. Take full advantage.Finally, be a specialist. Master the one market that can do you the most good. The mini-sized Dow Jones stock index will be enormously beneficial if you have long-term or short-term stock investments. You'll soon realize that by concentrating on one market you don't have to be Warren Buffet to make smart moves.
Friday, February 13, 2009
Bank of America or THE Bank of America?
Fears that the struggling bank may be nationalized have resurfaced as BofA's stock hits a nearly 20-year low. Some think CEO Ken Lewis needs to step down.
NEW YORK (CNNMoney.com) -- Is Bank of America literally destined to become THE Bank of America?
The Charlotte-based banking giant has already received $45 billion in taxpayer money. And the scary thing is that some think it may need even more to survive....possibly even an outright takeover by the government.
Shares tumbled nearly 18% early Thursday morning before bouncing back sharply later in the day and clawing into positive territory. Shares finished up 4%
But at one point Thursday, the stock was trading below $4 a share, its lowest point in more than 20 years.
That followed an 11% plunge Wednesday amid renewed speculation of nationalization.
BofA (BAC, Fortune 500) is struggling to digest the acquisitions of Merrill Lynch and mortgage lender Countrywide, and nothing it has done lately has given investors reason to be hopeful.
On Wednesday, BofA said that to cut costs it would sell three of its corporate jets and a helicopter it inherited in the Merrill deal.
Talkback: Should the government nationalize BofA?
Last week, the bank unveiled what it called its Lending and Investing Initiative, essentially a promise to track and report how it is using money from the government's Troubled Asset Relief Program, or TARP.
But those moves have been rightfully ignored by investors as little more than attempts to boost the bank's image.
BofA is hardly the only bank that has gotten whacked this week. Also getting hit were Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500).
That's largely due to concerns that the Obama administration might not actually unveil a plan for a so-called "aggregator bank" to buy up the spoiled assets sitting on many banks' balance sheets.
But BofA's stock has been the worst performer by far in recent days. Simply put, the continued weakness in BofA's shares is a sign that something drastic has to be done...stat.
Andrew Marquardt, an analyst with Fox-Pitt Kelton Cochran Caronia Waller, wrote in a research note Thursday morning that there needs to be "new leadership with a clear and consistent strategic plan to manage through the existing tough period."
"Inconsistency and poor vision at the helm has added to lack of conviction and confidence by investors and analysts," he added.
Is Lewis' job safe?
So far, BofA CEO Ken Lewis has continued to have the backing of his company's board of directors. But how much longer will that be the case? Former Merrill CEO John Thain has already lost his job. A spokesperson for Bank of America would not comment about the company's stock price or Lewis' status.
Some are calling for Lewis to go next. Jerry Finger, an investor who owns more than a million shares of BofA through his Houston-based firm Finger Interests, has said in various interviews that he would like to see Lewis step down.
Finger, who could not immediately be reached for comment, is leading a class-action lawsuit against the company. In the complaint, the plaintiffs allege that Lewis and Thain failed to protect shareholder interests when hammering out the BofA-Merrill deal.
But Lewis still has some fans. Richard Bove, an analyst with Ladenburg Thalmann, wrote in a report Thursday morning that "Ken Lewis may be the best operating manager of any bank in the United States."
Bove added that even though "investors believe that this bank is about to fail and be nationalized by the United States government," he thinks that "these fears simply make no sense whatsoever."
He pointed out that BofA, despite its fourth-quarter loss, is still cash-flow positive and that the bank reported a net increase in deposits of nearly $9 billion in the quarter.
Dan Genter, president and CEO of RNC Genter Capital Management, an investment firm in Los Angeles with about $2.7 billion in assets, added that bringing in a new CEO would not necessarily solve the bank's problems. But he conceded that Lewis' job could be in danger.
"I'm hoping they don't make a change. But this is an atmosphere that's punitive. The market is rewarding revenge to some degree," said Genter, whose firm owns a small stake in BofA.
And one hedge fund manager that used to own shares of BofA and Merrill Lynch last year said that he thinks Citigroup is in more trouble than BofA because of Citi's bigger exposure to bad trading bets.
"Nobody really knows what's on Bank of America's balance sheet. But I think you have to draw a distinction between them and Citigroup," said Morris Mark, president of Mark Asset Group, a New York-based hedge fund firm.
Nonetheless, an analyst with one investment firm that sold its stake in BofA late last year said Lewis does deserve blame for taking on all the risks that came with trying to digest two sizable mergers in the face of a severe economic slump.
"Lewis could have weathered this downturn if it was just Bank of America and its assets, but now he's got to deal with Countrywide and Merrill, whose problems I don't think he fully understood," said Virge Trotter, a senior analyst with Manning & Napier Advisors, a money management firm based in Rochester, N.Y.
Trotter added that BofA arguably could have gotten better deals for both Countrywide and Merrill Lynch if they were allowed to collapse first.
He noted how JPMorgan Chase CEO Jamie Dimon waited until he got loan guarantees from the Federal Reserve before deciding to buy investment bank Bear Stearns. And JPMorgan Chase didn't pounce on savings and loan Washington Mutual until after the savings and loan failed and was seized by the FDIC.
NEW YORK (CNNMoney.com) -- Is Bank of America literally destined to become THE Bank of America?
The Charlotte-based banking giant has already received $45 billion in taxpayer money. And the scary thing is that some think it may need even more to survive....possibly even an outright takeover by the government.
Shares tumbled nearly 18% early Thursday morning before bouncing back sharply later in the day and clawing into positive territory. Shares finished up 4%
But at one point Thursday, the stock was trading below $4 a share, its lowest point in more than 20 years.
That followed an 11% plunge Wednesday amid renewed speculation of nationalization.
BofA (BAC, Fortune 500) is struggling to digest the acquisitions of Merrill Lynch and mortgage lender Countrywide, and nothing it has done lately has given investors reason to be hopeful.
On Wednesday, BofA said that to cut costs it would sell three of its corporate jets and a helicopter it inherited in the Merrill deal.
Talkback: Should the government nationalize BofA?
Last week, the bank unveiled what it called its Lending and Investing Initiative, essentially a promise to track and report how it is using money from the government's Troubled Asset Relief Program, or TARP.
But those moves have been rightfully ignored by investors as little more than attempts to boost the bank's image.
BofA is hardly the only bank that has gotten whacked this week. Also getting hit were Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500).
That's largely due to concerns that the Obama administration might not actually unveil a plan for a so-called "aggregator bank" to buy up the spoiled assets sitting on many banks' balance sheets.
But BofA's stock has been the worst performer by far in recent days. Simply put, the continued weakness in BofA's shares is a sign that something drastic has to be done...stat.
Andrew Marquardt, an analyst with Fox-Pitt Kelton Cochran Caronia Waller, wrote in a research note Thursday morning that there needs to be "new leadership with a clear and consistent strategic plan to manage through the existing tough period."
"Inconsistency and poor vision at the helm has added to lack of conviction and confidence by investors and analysts," he added.
Is Lewis' job safe?
So far, BofA CEO Ken Lewis has continued to have the backing of his company's board of directors. But how much longer will that be the case? Former Merrill CEO John Thain has already lost his job. A spokesperson for Bank of America would not comment about the company's stock price or Lewis' status.
Some are calling for Lewis to go next. Jerry Finger, an investor who owns more than a million shares of BofA through his Houston-based firm Finger Interests, has said in various interviews that he would like to see Lewis step down.
Finger, who could not immediately be reached for comment, is leading a class-action lawsuit against the company. In the complaint, the plaintiffs allege that Lewis and Thain failed to protect shareholder interests when hammering out the BofA-Merrill deal.
But Lewis still has some fans. Richard Bove, an analyst with Ladenburg Thalmann, wrote in a report Thursday morning that "Ken Lewis may be the best operating manager of any bank in the United States."
Bove added that even though "investors believe that this bank is about to fail and be nationalized by the United States government," he thinks that "these fears simply make no sense whatsoever."
He pointed out that BofA, despite its fourth-quarter loss, is still cash-flow positive and that the bank reported a net increase in deposits of nearly $9 billion in the quarter.
Dan Genter, president and CEO of RNC Genter Capital Management, an investment firm in Los Angeles with about $2.7 billion in assets, added that bringing in a new CEO would not necessarily solve the bank's problems. But he conceded that Lewis' job could be in danger.
"I'm hoping they don't make a change. But this is an atmosphere that's punitive. The market is rewarding revenge to some degree," said Genter, whose firm owns a small stake in BofA.
And one hedge fund manager that used to own shares of BofA and Merrill Lynch last year said that he thinks Citigroup is in more trouble than BofA because of Citi's bigger exposure to bad trading bets.
"Nobody really knows what's on Bank of America's balance sheet. But I think you have to draw a distinction between them and Citigroup," said Morris Mark, president of Mark Asset Group, a New York-based hedge fund firm.
Nonetheless, an analyst with one investment firm that sold its stake in BofA late last year said Lewis does deserve blame for taking on all the risks that came with trying to digest two sizable mergers in the face of a severe economic slump.
"Lewis could have weathered this downturn if it was just Bank of America and its assets, but now he's got to deal with Countrywide and Merrill, whose problems I don't think he fully understood," said Virge Trotter, a senior analyst with Manning & Napier Advisors, a money management firm based in Rochester, N.Y.
Trotter added that BofA arguably could have gotten better deals for both Countrywide and Merrill Lynch if they were allowed to collapse first.
He noted how JPMorgan Chase CEO Jamie Dimon waited until he got loan guarantees from the Federal Reserve before deciding to buy investment bank Bear Stearns. And JPMorgan Chase didn't pounce on savings and loan Washington Mutual until after the savings and loan failed and was seized by the FDIC.
Record date for Aro Granite Industries bonus issue
We are bringing one more bonus issue record date for you today and that is for Aro Granite Industries. The bonus issue for this company is declared as 30 September 2008.Aro Granite Industries has fixed 30 September 2008 as the record date for the purpose of reckoning the members eligible for the bonus equity shares in the ratio of 1:2.The company made this announcement during the trading hours on Tuesday, 09 September 2008. Please stick to the blog for more such bonus issue record date updates for no cost at all.
VistaPrint.com - Solution for Graphic Design and Custom Printing
When it comes down to printing technology, VistaPrint is the name coming up on everyone's mind. VistaPrint is making high-quality graphic design and custom printing convenient and affordable for everyone.They provide high quality graphic design, Internet printing and many other premium services covering all your personal as well as business aspects.Their state-of-the-art technology enables them to deliver high quality printing solution without charging more. And this is how customers get high quality products are the lowest price.Whether you need business cards, letterhead and brochures for a small business or 10 unique, custom printed invitations for a child’s birthday party, they offer premium quality products and services at a surprisingly affordable price.One can also order Rubber Stamps. If you use the online coupon code "Stamp25", you would get 25% off rubber stamps at checkout. You can proceed to place orders from VistaPrint.co.uk in either two ways. One is to use the VistaPrint’s online tools to design products from scratch, picking from thousands of professionally designed templates, searching their image bank of over 70,000 images, or uploading graphics and photos or else design what you need in a desktop publishing program and then upload the designs to VistaPrint. So basically go ahead with whichever works for you.
VistaPrint.com - Solution for Graphic Design and Custom Printing
When it comes down to printing technology, VistaPrint is the name coming up on everyone's mind. VistaPrint is making high-quality graphic design and custom printing convenient and affordable for everyone.They provide high quality graphic design, Internet printing and many other premium services covering all your personal as well as business aspects.Their state-of-the-art technology enables them to deliver high quality printing solution without charging more. And this is how customers get high quality products are the lowest price.Whether you need business cards, letterhead and brochures for a small business or 10 unique, custom printed invitations for a child’s birthday party, they offer premium quality products and services at a surprisingly affordable price.One can also order Rubber Stamps. If you use the online coupon code "Stamp25", you would get 25% off rubber stamps at checkout. You can proceed to place orders from VistaPrint.co.uk in either two ways. One is to use the VistaPrint’s online tools to design products from scratch, picking from thousands of professionally designed templates, searching their image bank of over 70,000 images, or uploading graphics and photos or else design what you need in a desktop publishing program and then upload the designs to VistaPrint. So basically go ahead with whichever works for you.
Reliance Power Free Bonus Shares
Reliance Power Board will give free bonus shares to all it’s shareholders to compensate the losses everyone of us suffered when the company was listed a week ago and now trading at Rs 375.The company said its board would consider the free bonus shares at a meeting next Sunday, February 24, to benefit over four million of its investors and the cost would be accepted by promoter group by way of diluting its shareholders.
Hospitality Shares go down after terrorist attacks
After terrorist attacks on 26th Nov evening on two iconic south Mumbai hotels in our financial capital Mumbai, three hospitality shares slumped by 4% to 11%.Indian Hotels Company, EIH and Hotel Leela Ventures slipped by 3.89% to 11.46%Terrorists armed with grenades and rifles stormed into the Taj Mahal Palace and Oberoi hotel late on Wednesday, 26 November 2008.Indian Hotels Company operates Taj Group of Hotels and EIH operates Oberoi Group of Hotels.Mumbai's five star hotels, which have been already hit by the ongoing economic slowdown, will face even more downturn after Wednesday's (26 November 2008) terror attacks in an otherwise busy season that begins in October every year.
Friday, February 6, 2009
Financial market
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis.
Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.
Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy.
In finance, financial markets facilitate –
The raising of capital (in the capital markets);
The transfer of risk (in the derivatives markets);
International trade (in the currency markets)
– and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends
Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.
Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy.
In finance, financial markets facilitate –
The raising of capital (in the capital markets);
The transfer of risk (in the derivatives markets);
International trade (in the currency markets)
– and are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends
Algorithmic trading in foreign exchange
Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.[citation needed]
Financial instruments
] Spot
A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar and the Mexican Nuevo Peso, which settle the next day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market.
[Forward
See also: forward contract
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years.
[Future
Main article: currency future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
[Swap
Main article: foreign exchange swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
[edit] Option
Main article: foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.
Exchange Traded Fund
Main article: exchange-traded fund
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[13] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[14]
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[15] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
References
^ a b c Triennial Central Bank Survey (December 2007), Bank for International Settlements.
^ a b Annual FX poll (May 2008), Euromoney.
^ Source: Euromoney FX survey FX Poll 2008: The Euromoney FX survey is the largest global poll of foreign exchange service providers.'
^ http://www.ifsl.org.uk/upload/CBS_Foreign_Exchange_2007.pdf (December 2007), International Financial Services, London.
^ Alan Greenspan, The Roots of the Mortgage Crisis: Bubbles cannot be safely defused by monetary policy before the speculative fever breaks on its own. , the Wall Street Journal, December 12, 2007
^ McKay, Peter A. (2005-07-26). "Scammers Operating on Periphery Of CFTC's Domain Lure Little Guy With Fantastic Promises of Profits". The Wall Street Journal (Dow Jones and Company). http://online.wsj.com/article/SB112233850336095645.html?mod=Markets-Main. Retrieved on 31 October 2007.
^ Egan, Jack (2005-06-19). "Check the Currency Risk. Then Multiply by 100". The New York Times. http://www.nytimes.com/2005/06/19/business/yourmoney/19fore.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1191337503-g1yHfewhqPWye0XtI+Eq0A&oref=slogin. Retrieved on 30 October 2007.
^ The Sunday Times (UK), 16 July 2006
^ Safe haven currency
^ John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999), pp. 343–375.
^ Investopedia
^ Sam Y. Cross, All About the Foreign Exchange Market in the United States, Federal Reserve Bank of New York (1998), chapter 11, pp. 113–115.
^ Michael A. S. Guth, "Profitable Destabilizing Speculation," Chapter 1 in Michael A. S. Guth, SPECULATIVE BEHAVIOR AND THE OPERATION OF COMPETITIVE MARKETS UNDER UNCERTAINTY, Avebury Ashgate Publishing, Aldorshot, England (1994), ISBN 1856289850.
^ What I Learned at the World Economic Crisis Joseph Stiglitz, The New Republic, April 17, 2000, reprinted at GlobalPolicy.org
^ But Don't Rush Out to Buy Kronor: Sweden's 500% Gamble - International Herald Tribune
^ a b Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, New York, 1995
Financial instruments
] Spot
A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar and the Mexican Nuevo Peso, which settle the next day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot transactions has the second largest turnover by volume after Swap transactions among all FX transactions in the Global FX market.
[Forward
See also: forward contract
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a one day, a few days, months or years.
[Future
Main article: currency future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates — for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.
[Swap
Main article: foreign exchange swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.
[edit] Option
Main article: foreign exchange option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.
Exchange Traded Fund
Main article: exchange-traded fund
Exchange-traded funds (or ETFs) are open ended investment companies that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (e.g., SPY), but recently they are now replicating investments in the currency markets with the ETF increasing in value when the US Dollar weakens versus a specific currency, such as the Euro. Certain of these funds track the price movements of world currencies versus the US Dollar, and increase in value directly counter to the US Dollar, allowing for speculation in the US Dollar for US and US Dollar denominated investors and speculators.
Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[13] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[14]
Large hedge funds and other well capitalized "position traders" are the main professional speculators.
Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[15] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.
Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.
In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators allegedly made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions. Given that Malaysia recovered quickly after imposing currency controls directly against IMF advice, this view is open to doubt.
References
^ a b c Triennial Central Bank Survey (December 2007), Bank for International Settlements.
^ a b Annual FX poll (May 2008), Euromoney.
^ Source: Euromoney FX survey FX Poll 2008: The Euromoney FX survey is the largest global poll of foreign exchange service providers.'
^ http://www.ifsl.org.uk/upload/CBS_Foreign_Exchange_2007.pdf (December 2007), International Financial Services, London.
^ Alan Greenspan, The Roots of the Mortgage Crisis: Bubbles cannot be safely defused by monetary policy before the speculative fever breaks on its own. , the Wall Street Journal, December 12, 2007
^ McKay, Peter A. (2005-07-26). "Scammers Operating on Periphery Of CFTC's Domain Lure Little Guy With Fantastic Promises of Profits". The Wall Street Journal (Dow Jones and Company). http://online.wsj.com/article/SB112233850336095645.html?mod=Markets-Main. Retrieved on 31 October 2007.
^ Egan, Jack (2005-06-19). "Check the Currency Risk. Then Multiply by 100". The New York Times. http://www.nytimes.com/2005/06/19/business/yourmoney/19fore.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=1191337503-g1yHfewhqPWye0XtI+Eq0A&oref=slogin. Retrieved on 30 October 2007.
^ The Sunday Times (UK), 16 July 2006
^ Safe haven currency
^ John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999), pp. 343–375.
^ Investopedia
^ Sam Y. Cross, All About the Foreign Exchange Market in the United States, Federal Reserve Bank of New York (1998), chapter 11, pp. 113–115.
^ Michael A. S. Guth, "Profitable Destabilizing Speculation," Chapter 1 in Michael A. S. Guth, SPECULATIVE BEHAVIOR AND THE OPERATION OF COMPETITIVE MARKETS UNDER UNCERTAINTY, Avebury Ashgate Publishing, Aldorshot, England (1994), ISBN 1856289850.
^ What I Learned at the World Economic Crisis Joseph Stiglitz, The New Republic, April 17, 2000, reprinted at GlobalPolicy.org
^ But Don't Rush Out to Buy Kronor: Sweden's 500% Gamble - International Herald Tribune
^ a b Gregory J. Millman, Around the World on a Trillion Dollars a Day, Bantam Press, New York, 1995
Market size and liquidity
The foreign exchange market is unique because of
its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[1] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account. FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 currency traders [3]% of overall volume, May 2008
Rank
Name
Volume
1Deutsche Bank 21.70%
2 UBS AG 15.80%
3 Barclays Capital 9.12%
4Citi 7.49%
5Royal Bank of Scotland 7.30%
6JPMorgan 4.19%
7HSBC 4.10%
8Lehman Brothers 3.58%
9Goldman Sachs 3.47%
10Morgan Stanley 2.86%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as retail trading platforms platforms offered by companies such as ParagonEX, First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).[4] Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey.[2] These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.
its trading volumes,
the extreme liquidity of the market,
its geographical dispersion,
its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday),
the variety of factors that affect exchange rates.
the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
the use of leverage
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
As such, it has been referred to as the market closest to the ideal perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[1] average daily turnover in global foreign exchange markets is estimated at $3.98 trillion. Trading in the world's main financial markets accounted for $3.21 trillion of this. This approximately $3.21 trillion in main foreign exchange market turnover was broken down as follows:
$1.005 trillion in spot transactions
$362 billion in outright forwards
$1.714 trillion in foreign exchange swaps
$129 billion estimated gaps in reporting
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%. In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India—[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account. FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top 10 currency traders [3]% of overall volume, May 2008
Rank
Name
Volume
1Deutsche Bank 21.70%
2 UBS AG 15.80%
3 Barclays Capital 9.12%
4Citi 7.49%
5Royal Bank of Scotland 7.30%
6JPMorgan 4.19%
7HSBC 4.10%
8Lehman Brothers 3.58%
9Goldman Sachs 3.47%
10Morgan Stanley 2.86%
Foreign exchange trading increased by 38% between April 2005 and April 2006 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues such as retail trading platforms platforms offered by companies such as ParagonEX, First Prudential Markets and Saxo Bank have made it easier for retail traders to trade in the foreign exchange market. In 2006, retail traders constituted over 2% of the whole FX market volumes with an average daily trade volume of over US$50-60 billion (see retail trading platforms).[4] Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to IFSL estimates has increased its share of global turnover in traditional transactions from 31.3% in April 2004 to 34.1% in April 2007. The ten most active traders account for almost 80% of trading volume, according to the 2008 Euromoney FX survey.[2] These large international banks continually provide the market with both bid (buy) and ask (sell) prices. The bid/ask spread is the difference between the price at which a bank or market maker will sell ("ask", or "offer") and the price at which a market-maker will buy ("bid") from a wholesale customer. This spread is minimal for actively traded pairs of currencies, usually 0–3 pips. For example, the bid/ask quote of EUR/USD might be 1.2200/1.2203 on a retail broker. Minimum trading size for most deals is usually 100,000 units of base currency, which is a standard "lot".
These spreads might not apply to retail customers at banks, which will routinely mark up the difference to say 1.2100/1.2300 for transfers, or say 1.2000/1.2400 for banknotes or travelers' checks. Spot prices at market makers vary, but on EUR/USD are usually no more than 3 pips wide (i.e., 0.0003). Competition is greatly increased with larger transactions, and pip spreads shrink on the major pairs to as little as 1 to 2 pips.
Foreign exchange market
The foreign exchange (currency, ForEx, or FX) market is where currency trading takes place. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.
Today, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.
Today, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual FX Poll, volumes grew a further 41% between 2007 and 2008.The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, etc., and the need for trading in such currencies.
The future of stock exchanges
The future of stock trading appears to be electronic, as competition is continually growing between the remaining traditional New York Stock Exchange specialist system against the relatively new, all Electronic Communications Networks, or ECNs. ECNs point to their speedy execution of large block trades, while specialist system proponents cite the role of specialists in maintaining orderly markets, especially under extraordinary conditions or for special types of orders.
The ECNs contend that an array of special interests profit at the expense of investors in even the most mundane exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up the execution mechanism and eliminate the need to deal with an intermediary.
Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all exchanges) has been slow to respond to technological innovation, thus allowing growing pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs traders", who, like in September and October 2008, earned billions of dollars selling shares they did not have, and days later buying the same amount of shares, but maybe 15 % cheaper, so these shares could be handed to their buyers, thereby making the market fall deeply.
William Lupien, founder of the Instinet trading system and the OptiMark system, has been quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast once you reach the tipping point. We're now at the tipping point."
One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street traders use knowledge of a customer's incoming order to place their own orders so as to benefit from the perceived change to market direction that the introduction of a large order will cause. By executing large trades at lightning speed without manual intervention, ECNs make impossible this illegal practice, for which several NYSE floor brokers were investigated and severely fined in recent years.[6] Under the specialist system, when the market sees a large trade in a name, other buyers are immediately able to look to see how big the trader is in the name, and make inferences about why s/he is selling or buying. All traders who are quick enough are able to use that information to anticipate price movements.
ECNs have changed ordinary stock transaction processing (like brokerage services before them) into a commodity-type business. ECNs could regulate the fairness of initial public offerings (IPOs), oversee Hambrecht's OpenIPO process, or measure the effectiveness of securities research and use transaction fees to subsidize small- and mid-cap research efforts.
Some[who?], however, believe the answer will be some combination of the best of technology and "upstairs trading" — in other words, a hybrid model.
Trading 25,000 shares of General Electric stock (recent[when?] quote: $34.76; recent[when?] volume: 44,760,300) would be a relatively simple e-commerce transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent quote: $139,700.00; recent volume: 850) may never be. The choice of system should be clear (but always that of the trader), based on the characteristics of the security to be traded.
Even with ECNs forming an important part of a national market system, opportunities presumably remain to profit from the spread between the bid and offer price. That is especially true for investment managers that direct huge trading volume, and own a stake in an ECN or specialist firm. For example, in its individual stock-brokerage accounts, "Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its undesignated market orders through the Boston Stock Exchange, where an affiliate controls a specialist post."
The ECNs contend that an array of special interests profit at the expense of investors in even the most mundane exchange-directed trades. Machine-based systems, they argue, are much more efficient, because they speed up the execution mechanism and eliminate the need to deal with an intermediary.
Historically, the 'market' (which, as noted, encompasses the totality of stock trading on all exchanges) has been slow to respond to technological innovation, thus allowing growing pure speculation to continue. Conversion to all-electronic trading could erode/eliminate the trading profits of floor specialists and the NYSE's "upstairs traders", who, like in September and October 2008, earned billions of dollars selling shares they did not have, and days later buying the same amount of shares, but maybe 15 % cheaper, so these shares could be handed to their buyers, thereby making the market fall deeply.
William Lupien, founder of the Instinet trading system and the OptiMark system, has been quoted as saying "I'd definitely say the ECNs are winning... Things happen awfully fast once you reach the tipping point. We're now at the tipping point."
One example of improved efficiency of ECNs is the prevention of front running, by which manual Wall Street traders use knowledge of a customer's incoming order to place their own orders so as to benefit from the perceived change to market direction that the introduction of a large order will cause. By executing large trades at lightning speed without manual intervention, ECNs make impossible this illegal practice, for which several NYSE floor brokers were investigated and severely fined in recent years.[6] Under the specialist system, when the market sees a large trade in a name, other buyers are immediately able to look to see how big the trader is in the name, and make inferences about why s/he is selling or buying. All traders who are quick enough are able to use that information to anticipate price movements.
ECNs have changed ordinary stock transaction processing (like brokerage services before them) into a commodity-type business. ECNs could regulate the fairness of initial public offerings (IPOs), oversee Hambrecht's OpenIPO process, or measure the effectiveness of securities research and use transaction fees to subsidize small- and mid-cap research efforts.
Some[who?], however, believe the answer will be some combination of the best of technology and "upstairs trading" — in other words, a hybrid model.
Trading 25,000 shares of General Electric stock (recent[when?] quote: $34.76; recent[when?] volume: 44,760,300) would be a relatively simple e-commerce transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent quote: $139,700.00; recent volume: 850) may never be. The choice of system should be clear (but always that of the trader), based on the characteristics of the security to be traded.
Even with ECNs forming an important part of a national market system, opportunities presumably remain to profit from the spread between the bid and offer price. That is especially true for investment managers that direct huge trading volume, and own a stake in an ECN or specialist firm. For example, in its individual stock-brokerage accounts, "Fidelity Investments runs 29% of its undesignated orders in NYSE-listed stocks, and 37% of its undesignated market orders through the Boston Stock Exchange, where an affiliate controls a specialist post."
Ownership
Stock exchanges originated as mutual organizations, owned by its member stock brokers. There has been a recent trend for stock exchanges to demutualize, where the members sell their shares in an initial public offering. In this way the mutual organization becomes a corporation, with shares that are listed on a stock exchange. Examples are Australian Securities Exchange (1998), Euronext (merged with New York Stock Exchange), NASDAQ (2002), the New York Stock Exchange (2005), Bolsas y Mercados Españoles, and the São Paulo Stock Exchange (2007). The Shenzhen and Shanghai stock exchanges can been characterized as quasi-state institutions insofar as they were created by government bodies in China and their leading personnel are directly appointed by the China Securities Regulatory Commission.
[edit] Other types of exchanges
In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges.
[edit] Other types of exchanges
In the 19th century, exchanges were opened to trade forward contracts on commodities. Exchange traded forward contracts are called futures contracts. These commodity exchanges later started offering future contracts on other products, such as interest rates and shares, as well as options contracts. They are now generally known as futures exchanges.
The role of stock exchanges
Stock exchanges have multiple roles in the economy, this may include the following:[1]
[edit] Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.[2]
[edit] Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.
[edit] Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
[edit] Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
[edit] Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008), Lehman Brothers (2008), and Satyam Computer Services were among the most widely scrutinized by the media.
[edit] Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
[edit] Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
[edit] Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
[edit] Raising capital for businesses
The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.[2]
[edit] Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.
[edit] Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
[edit] Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
[edit] Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008), Lehman Brothers (2008), and Satyam Computer Services were among the most widely scrutinized by the media.
[edit] Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
[edit] Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.
[edit] Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
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