In finance, a futures contract is a standardized forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is a commodity or financial instrument; the predetermined price the parties agree to buy and sell the asset for is known as the forward price. The specified time in the future—which is when delivery and payment occur—is known as the delivery date; because it is a function of an underlying asset, a futures contract is a derivative product. Contracts are negotiated at futures exchanges, which act as a marketplace between buyers and sellers; the buyer of a contract is said to be long position holder, the selling party is said to be short position holder. As both parties risk their counter-party walking away if the price goes against them, the contract may involve both parties lodging a margin of the value of the contract with a mutually trusted third party. For example, in gold futures trading, the margin varies between 2% and 20% depending on the volatility of the spot market.
The first futures contracts were negotiated for agricultural commodities, futures contracts were negotiated for natural resources such as oil. Financial futures were introduced in 1972, in recent decades, currency futures, interest rate futures and stock market index futures have played an large role in the overall futures markets; the original use of futures contracts was to mitigate the risk of price or exchange rate movements by allowing parties to fix prices or rates in advance for future transactions. This could be advantageous when a party expects to receive payment in foreign currency in the future, wishes to guard against an unfavorable movement of the currency in the interval before payment is received. However, futures contracts offer opportunities for speculation in that a trader who predicts that the price of an asset will move in a particular direction can contract to buy or sell it in the future at a price which will yield a profit; the Dutch pioneered several financial instruments and helped lay the foundations of the modern financial system.
In Europe, formal futures markets appeared in the Dutch Republic during the 17th century. Among the most notable of these early futures contracts were the tulip futures that developed during the height of the Dutch Tulipmania in 1636; the Dōjima Rice Exchange, first established in 1697 in Osaka, is considered by some to be the first futures exchange market, to meet the needs of samurai who—being paid in rice, after a series of bad harvests—needed a stable conversion to coin. The Chicago Board of Trade listed the first-ever standardized'exchange traded' forward contracts in 1864, which were called futures contracts; this contract was based on grain trading, started a trend that saw contracts created on a number of different commodities as well as a number of futures exchanges set up in countries around the world. By 1875 cotton futures were being traded in Bombay in India and within a few years this had expanded to futures on edible oilseeds complex, raw jute and jute goods and bullion; the 1972 creation of the International Monetary Market, the world's first financial futures exchange, launched currency futures.
In 1976, the IMM added interest rate futures on US treasury bills, in 1982 they added stock market index futures. Although futures contracts are oriented towards a future time point, their main purpose is to mitigate the risk of default by either party in the intervening period. In this vein, the futures exchange requires both parties to put up initial cash, or a performance bond, known as the margin. Margins, sometimes set as a percentage of the value of the futures contract, must be maintained throughout the life of the contract to guarantee the agreement, as over this time the price of the contract can vary as a function of supply and demand, causing one side of the exchange to lose money at the expense of the other. To mitigate the risk of default, the product is marked to market on a daily basis where the difference between the initial agreed-upon price and the actual daily futures price is re-evaluated daily; this is sometimes known as the variation margin, where the futures exchange will draw money out of the losing party's margin account and put it into that of the other party, ensuring the correct loss or profit is reflected daily.
If the margin account goes below a certain value set by the exchange a margin call is made and the account owner must replenish the margin account. This process is known as marking to market, thus on the delivery date, the amount exchanged is not the specified price on the contract but the spot value. Upon marketing, the strike price is reached and creates lots of income for the "caller." To minimize credit risk to the exchange, traders must post a margin or a performance bond 5%-15% of the contract's value. Unlike use of the term margin in equities, this performance bond is not a partial payment used to purchase a security, but a good-faith deposit held to cover the day-to-day obligations of maintaining the position. To minimize counterparty risk to traders, trades executed on regulated futures exchanges are guaranteed by a clearing house; the clearing house becomes the buyer to each seller, the seller to each buyer, so that in the event of a counterparty default the clearer assumes the risk of loss.
This enables traders to transact without performing due diligence on their counterparty. Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spread traders who hav
Day trading is speculation in securities buying and selling financial instruments within the same trading day, such that all positions are closed before the market closes for the trading day. Traders who trade in this capacity with the motive of profit are therefore speculators; the methods of quick trading contrast with the long-term trades underlying buy and hold and value investing strategies. Day traders exit positions before the market closes to avoid unmanageable risks negative price gaps between one day's close and the next day's price at the open. Day traders use margin leverage. In the United States, people who make more than 4 day trades per week are termed pattern day traders and are required to maintain $25,000 in equity in their accounts. Since margin interest is only charged on overnight balances, the trader may pay no interest fees for the margin benefit, though still running the risk of a margin call. Margin interest rates are based on the broker's call; some of the more day-traded financial instruments are stocks, currencies, a host of futures contracts such as equity index futures, interest rate futures, currency futures and commodity futures.
Day trading was once an activity, exclusive to financial firms and professional speculators. Many day traders are bank or investment firm employees working as specialists in equity investment and fund management. Day trading gained popularity after the deregulation of commissions in the United States in 1975, the advent of electronic trading platforms in the 1990s, with the stock price volatility during the dot-com bubble; some day traders use an intra-day technique known as scalping that has the trader holding a position for a few minutes or seconds. Because of the nature of financial leverage and the rapid returns that are possible, day trading results can range from profitable to unprofitable, high-risk profile traders can generate either huge percentage returns or huge percentage losses; because of the high profits that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. Day trading is risky if any of the following is present while trading: trading a loser's game/system rather than a game that's at least winnable, inadequate risk capital with the accompanying excess stress of having to "survive", incompetent money management.
The common use of buying on margin amplifies gains and losses, such that substantial losses or gains can occur in a short period of time. In addition, brokers allow bigger margin for day traders. In the United States for example, while the initial margin required to hold a stock position overnight are 50% of the stock's value due to Regulation T, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases; this means a day trader with the legal minimum $25,000 in his account can buy $100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, of other day trading practices, a day trader will have to exit a losing position quickly, in order to prevent a greater, unacceptable loss, or a disastrous loss, much larger than his original investment, or larger than his total assets; the most important U. S. stocks were traded on the New York Stock Exchange. A trader would contact a stockbroker, who would relay the order to a specialist on the floor of the NYSE.
These specialists would each make markets in only a handful of stocks. The specialist would match the purchaser with another broker's seller. Before 1975, brokerage commissions were fixed at 1% of the amount of the trade, i.e. to purchase $10,000 worth of stock cost the buyer $100 in commissions and same 1% to sell. Meaning that to profit trades had to make over 2 % to make any real gain. One of the first steps to make day trading of shares profitable was the change in the commission scheme. In 1975, the United States Securities and Exchange Commission made fixed commission rates illegal, giving rise to discount brokers offering much reduced commission rates. Financial settlement periods used to be much longer: Before the early 1990s at the London Stock Exchange, for example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy shares at the beginning of a settlement period only to sell them before the end of the period hoping for a rise in price; this activity was identical to modern day trading, but for the longer duration of the settlement period.
But today, to reduce market risk, the settlement period is two working days. Reducing the settlement period reduces the likelihood of default, but was impossible before the advent of electronic ownership transfer; the systems by which stocks are traded have evolved, the second half of the twentieth century having seen the advent of electronic communication networks. These are large proprietary computer networks on which brokers can list a certain amount of securities to sell at a certain price or offer to buy a certain amount of securities at a certain price. ECNs and exchanges are known to traders by a three- or four-letter designators, which identify the ECN or exchange on Level II stock scr
In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can purchase or sell an asset without causing a drastic change in the asset's price. Liquidity is about how big the trade-off is between the speed of the sale and the price it can be sold for. In a liquid market, the trade-off is mild: selling will not reduce the price much. In a illiquid market, selling it will require cutting its price by some amount. Liquidity can be measured either based on trade volume relative to shares outstanding or based on the bid-ask spread or transactions costs of trading. Money, or cash, is the most liquid asset, because it can be "sold" for goods and services with no loss of value. There is no wait for a suitable buyer of the cash. There is no trade-off between value, it can be used to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs. If an asset is moderately liquid, it has moderate liquidity. In an alternative definition, liquidity can mean the amount of cash equivalents.
If a business has moderate liquidity, it has a moderate amount of liquid assets. If a business has sufficient liquidity, it has a sufficient amount of liquid assets and the ability to meet its payment obligations. An act of exchanging a less liquid asset for a more liquid asset is called liquidation. Liquidation is trading the less liquid asset for cash known as selling it. An asset's liquidity can change. For the same asset, its liquidity can change through time or between different markets, such as in different countries; the change in the asset's liquidity is just based on the market liquidity for the asset at the particular time or in the particular country, etc. The liquidity of a product can be measured as how it is bought and sold. Liquidity can be enhanced through share repurchases. Liquidity is defined formally in many accounting regimes and has in recent years been more defined. For instance, the US Federal Reserve intends to apply quantitative liquidity requirements based on Basel III liquidity rules as of fiscal 2012.
Bank directors will be required to know of, approve, major liquidity risks personally. Other rules require diversifying counterparty risk and portfolio stress testing against extreme scenarios, which tend to identify unusual market liquidity conditions and avoid investments that are vulnerable to sudden liquidity shifts. A liquid asset has some or all of the following features: It can be sold with minimal loss of value, anytime within market hours; the essential characteristic of a liquid market is that there are always ready and willing buyers and sellers. It is similar to, but distinct from, market depth, which relates to the trade-off between quantity being sold and the price it can be sold for, rather than the liquidity trade-off between speed of sale and the price it can be sold for. A market may be considered both deep and liquid if there are ready and willing buyers and sellers in large quantities. An illiquid asset is an asset, not salable due to uncertainty about its value or the lack of a market in which it is traded.
The mortgage-related assets which resulted in the subprime mortgage crisis are examples of illiquid assets, as their value was not determinable despite being secured by real property. Before the crisis, they had moderate liquidity because it was believed that their value was known. Speculators and market makers are key contributors to the liquidity of a asset. Speculators are individuals or institutions that seek to profit from anticipated increases or decreases in a particular market price. Market makers seek to profit by charging for the immediacy of execution: either implicitly by earning a bid/ask spread or explicitly by charging execution commissions. By doing this, they provide; the risk of illiquidity does not apply only to individual investments: whole portfolios are subject to market risk. Financial institutions and asset managers that oversee portfolios are subject to what is called "structural" and "contingent" liquidity risk. Structural liquidity risk, sometimes called funding liquidity risk, is the risk associated with funding asset portfolios in the normal course of business.
Contingent liquidity risk is the risk associated with finding additional funds or replacing maturing liabilities under potential, future stressed market conditions. When a central bank tries to influence the liquidity of money, this process is known as open market operations; the market liquidity of assets affects expected returns. Theory and empirical evidence suggests that investors require higher return on assets with lower market liquidity to compensate them for the higher cost of trading these assets; that is, for an asset with given cash flow, the higher its market liquidity, the higher its price and the lower is its expected return. In addition, risk-averse investors require higher expected return if the asset's market-liquidity risk is greater; this risk involves the exposure of the asset return to shocks in overall market liquidity, the exposure of the asset own liquidity to shocks in market liquidity and the effect of market return on the asset's own liquidity. Here too, the higher the liquidity risk, the higher the expected return on the asset or the lower is its price.
One example of this is a comparison of assets without a liquid secondary market. The liquidity discount is the reduced promised yield or expected a return for such assets, like the difference between newly issued U. S. Treasury bonds compared to off
The secondary market called the aftermarket and follow on public offering is the financial market in which issued financial instruments such as stock, bonds and futures are bought and sold. Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac; the term "secondary market" is used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market; the secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, from illiquid to liquid.
The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, London Stock Exchange and Nasdaq provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange. In the secondary market, securities are sold by and transferred from one investor or speculator to another, it is therefore important that the secondary market be liquid. As a general rule, the greater the number of investors that participate in a given marketplace, the greater the centralization of that marketplace, the more liquid the market. Fundamentally, secondary markets mesh the investor's preference for liquidity with the capital user's preference to be able to use the capital for an extended period of time.
Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, make hostile takeover a less risky proposition and thus move capital into the hands of better managers, 2) accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing. The term may refer to markets in things of value other than securities. For example, the ability to buy and sell intellectual property such as patents, or rights to musical compositions, is considered a secondary market because it allows the owner to resell property entitlements issued by the government. Secondary markets can be said to exist in some real estate contexts as well; these have similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, financing through securitization.
It facilitates marketability of the long term instrument. It provides instant valuation of securities caused by changes in the environment. Private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity funds. Sellers of private equity investments sell not only the investments in the fund but their remaining unfunded commitments to the funds. Due to the increased compliance and reporting obligations enacted in the Sarbanes-Oxley Act of 2002, private secondary markets began to emerge, such as SecondMarket and SecondaryLink; these markets are only available to institutional or accredited investors and allow trading of unregistered and private company securities. Digital currency exchanges are being regarded as secondary markets. Aftermarket Clean Energy Bank Grey market Primary market Third market Fourth market Original equipment manufacturer Private equity secondary market Reseller
A stock trader or equity trader or share trader is a person or company involved in trading equity securities. Stock traders may be an agent, arbitrageur, stockbroker; such equity trading in large publicly traded companies may be through one of the major stock exchanges, such as the New York Stock Exchange or the London Stock Exchange, which serve as managed auctions for stock trades. Stock shares in smaller public companies are sold in over-the-counter markets. Equity trading can be performed by the owner of the shares, or by an agent authorized to buy and sell on behalf of the share's owner. Proprietary trading is selling for the trader's own profit or loss. In this case, the principal is the owner of the shares. Agency trading is buying and selling by an agent a stockbroker, on behalf of a client. Agents are paid a commission for performing the trade. Major stock exchanges have market makers who help limit price variation by buying and selling a particular company's shares on their own behalf and on behalf of other clients.
Stock traders help manage portfolios. Traders engage in buying and selling bonds, stocks and shares in hedge funds. A stock trader conducts extensive research and observation of how financial markets perform; this is accomplished through microeconomic study. Other duties of a stock trader include comparison of financial analysis to current and future regulation of his or her occupation. Professional stock traders who work for a financial company, are required to complete an internship of up to four months before becoming established in their career field. In the United States, for example, internship is followed up by taking and passing a Financial Industry Regulatory Authority-administered Series 63 or 65 exam. Stock traders who pass demonstrate familiarity with U. S. Securities and Exchange Commission compliant practices and regulation. Stock traders with experience obtain a four-year degree in a financial, accounting or economics field after licensure. Supervisory positions as a trader may require an MBA for advanced stock market analysis.
The U. S. Bureau of Labor Statistics reported that growth for stock and commodities traders was forecast to be greater than 21% between 2006 and 2016. In that period, stock traders would benefit from trends driven by pensions of baby boomers and their decreased reliance on Social Security. U. S. Treasury bonds would be traded on a more fluctuating basis. Stock traders just entering the field suffer. While entry into this career field is competitive, increased ownership of stocks and mutual funds drive substantial career growth of traders. Banks were offering more opportunities for people of average means to invest and speculate in stocks; the BLS reported that stock traders had median annual incomes of $68,500. Experienced traders of stocks and mutual funds have the potential to earn more than $145,600 annually. Contrary to a stockbroker, a professional who arranges transactions between a buyer and a seller, gets a guaranteed commission for every deal executed, a professional trader may have a steep learning curve and his/her ultra-competitive performance based career may be cut short during generalized stock market crashes.
Stock market trading operations have a high level of risk and complexity for unwise and inexperienced stock traders/investors seeking an easy way to make money quickly. In addition, trading activities are not free. Stock speculators/investors face several costs such as commissions and fees to be paid for the brokerage and other services, like the buying/selling orders placed at the stock exchange. Depending on the nature of each national or state legislation involved, a large array of fiscal obligations must be respected, taxes are charged by jurisdictions over those transactions and capital gains that fall within their scope. However, these fiscal obligations will vary from jurisdiction to jurisdiction. Among other reasons, there could be some instances where taxation is incorporated into the stock price through the differing legislation that companies have to comply with in their respective jurisdictions. Beyond these costs are the opportunity costs of money and time, currency risk, financial risk, Internet and news agency services and electricity consumption expenses—all of which must be accounted for.
Jérôme Kerviel and Kweku Adoboli, two rogue traders, worked in the same type of position, the Delta One desk - a table where derivatives are traded, not single stocks or bonds. These types of operations are simple and reserved for novice traders who specialize in exchange-traded funds, financial products that mimic the performance of an index; as they are easy to use, they facilitate portfolio diversification through the acquisition of contracts backed by a stock index or industry. The two traders were familiar to control procedures, they worked in the back office, the administrative body of the bank that controls the regularity of operations, before moving to trading. According to the report of the Inspector General of Societe Generale, in 2005 and 2006 Kerviel "led" by taking 100 to 150 million-euro positions on the shares of Solarworld AG listed in Germany. Moreover, the "unauthorized trading" of Kweku Adoboli, similar to Kerviel, did not date back a long way. Adoboli h
The Nasdaq Stock Market is an American stock exchange. It is the second-largest stock exchange in the world by market capitalization, behind only the New York Stock Exchange located in the same city; the exchange platform is owned by Nasdaq, Inc. which owns the Nasdaq Nordic and Nasdaq Baltic stock market network and several U. S. stock and options exchanges. "Nasdaq" was an acronym for the National Association of Securities Dealers Automated Quotations. It was founded in 1971 by the National Association of Securities Dealers, which divested itself of Nasdaq in a series of sales in 2000 and 2001; the Nasdaq Stock Market is owned and operated by Nasdaq, Inc. the stock of, listed on its own securities exchange on July 2, 2002, under the ticker symbol NDAQ. The Nasdaq Stock Market began trading on February 8, 1971, it was the world's first electronic stock market. At first, it was a "quotation system" and did not provide a way to perform electronic trades; the Nasdaq Stock Market helped lower the spread but was unpopular among brokerages which made much of their money on the spread.
The NASDAQ Stock Market assumed the majority of major trades, executed by the over-the-counter system of trading, but there are still many securities traded in this fashion. As late as 1987, the Nasdaq exchange was still referred to as "OTC" in media reports and in the monthly Stock Guides issued by Standard & Poor's Corporation. Over the years, the Nasdaq Stock Market became more of a stock market by adding trade and volume reporting and automated trading systems, it was the first stock market in the United States to trade online, highlighting Nasdaq-traded companies and closing with the declaration that the Nasdaq Stock Market is "the stock market for the next hundred years". The Nasdaq Stock Market attracted new growth companies, including Microsoft, Cisco and Dell, it helped modernize the IPO, its main index is the NASDAQ Composite, published since its inception. However, its exchange-traded fund tracks the large-cap NASDAQ-100 index, introduced in 1985 alongside the NASDAQ Financial-100 Index, which tracks the largest 100 companies in terms of market capitalization.
In 1992, the Nasdaq Stock Market joined with the London Stock Exchange to form the first intercontinental linkage of securities markets. The National Association of Securities Dealers spun off the Nasdaq Stock Market in 2000 to form a publicly traded company. On March 10, 2000, the NASDAQ Composite peaked at 5,132.52, but fell to 3,227 by April 17, in the following 30 months fell 78% from its peak. In 2006, the status of the Nasdaq Stock Market was changed from a stock market to a licensed national securities exchange. In 2010, Nasdaq merged with OMX, a leading exchange operator in the Nordic countries, expanded its global footprint, changed its name to the NASDAQ OMX Group. To qualify for listing on the exchange, a company must be registered with the United States Securities and Exchange Commission, must have at least three market makers and must meet minimum requirements for assets, public shares, shareholders. In February 2000, in the wake of an announced merger of NYSE Euronext with Deutsche Börse, speculation developed that NASDAQ OMX and Intercontinental Exchange could mount a counter-bid of their own for NYSE.
NASDAQ OMX could be looking to acquire the American exchange's cash equities business, ICE the derivatives business. At the time, "NYSE Euronext's market value was $9.75 billion. Nasdaq was valued at $5.78 billion, while ICE was valued at $9.45 billion." Late in the month, Nasdaq was reported to be considering asking either ICE or the Chicago Mercantile Exchange to join in what would have to be, if it proceeded, an $11–12 billion counterbid. In 2005, NASDAQ acquirred Instinet for $1.9 billion retaining the INET ECN and subsequently sellin the agency brokerage business to Silver Lake Partners and Instinet management. The European Association of Securities Dealers Automatic Quotation System was founded as a European equivalent to the Nasdaq Stock Market, it became NASDAQ Europe. Operations were shut however, as a result of the burst of the dot-com bubble. In 2007, NASDAQ Europe was revived as Equiduct, is operating under Börse Berlin. On June 18, 2012, Nasdaq OMX became a founding member of the United Nations Sustainable Stock Exchanges Initiative on the eve of the United Nations Conference on Sustainable Development.
In November 2016, Nasdaq chief operating officer Adena Friedman was promoted to the role of CEO, becoming the first woman to run a major exchange in the U. S. In 2016, Nasdaq earned $272 million in listings-related revenues. In October 2018, the SEC ruled that the NYSE and Nasdaq did not justify the continued price increases when selling market data. Nasdaq quotes are available at three levels: Level 1 shows the highest bid and lowest ask—inside quote. Level 2 shows all public quotes of market makers together with information of market dealers wishing to buy or sell stock and executed orders. Level 3 allows them to enter their quotes and execute orders; the Nasdaq Stock Market sessions eastern time are: 4:00 am to 9:30 am premarket session 9:30 am to 4:00 pm normal trading session 4:00 pm to 8:00 pm postmarket sessionThe Nasdaq Stock Market averages about 253 trading days per year. The Nasdaq Stock Market has three different market tiers: Capital Market is an equity market for companies that have relatively