The stock of a corporation is all of the shares into which ownership of the corporation is divided. In American English, the shares are known as "stocks." A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders. Stock can be bought and sold or on stock exchanges, such transactions are heavily regulated by governments to prevent fraud, protect investors, benefit the larger economy; as new shares are issued by a company, the ownership and rights of existing shareholders are diluted in return for cash to sustain or grow the business.
Companies can buy back stock, which lets investors recoup the initial investment plus capital gains from subsequent rises in stock price. Stock options, issued by many companies as part of employee compensation, do not represent ownership, but represent the right to buy ownership at a future time at a specified price; this would represent a windfall to the employees if the option is exercised when the market price is higher than the promised price, since if they sold the stock they would keep the difference. A person who owns a specific percentage of the share has the ownership of the corporation proportional to his share; the shares together form stock. The stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the existing shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, a nominal accounting value used to represent the equity on the balance sheet of the corporation.
In other jurisdictions, shares of stock may be issued without associated par value. Shares represent a fraction of ownership in a business. A business may declare different types of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a legal document that specifies the number of shares owned by the shareholder, other specifics of the shares, such as the par value, if any, or the class of the shares. In the United Kingdom, Republic of Ireland, South Africa, Australia, stock can refer to different financial instruments such as government bonds or, less to all kinds of marketable securities. Stock takes the form of shares of either common stock or preferred stock; as a unit of ownership, common stock carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it does not carry voting rights but is entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.
Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares any time after a predetermined date. Shares of such stock are called "convertible preferred shares". New equity issue may have specific legal clauses attached that differentiate them from previous issues of the issuer; some shares of common stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them and issued only to certain parties. New issues that have not been registered with a securities governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and common stock voting rights, they have preference in the payment of dividends over common stock and have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend. In addition, preferred stock comes with a letter designation at the end of the security.
B, whereas Class "A" shares of ORION DHC, Inc will sell under ticker OODHA until the company drops the "A" creating ticker OODH for its "Common" shares only designation. This extra letter does not mean that any exclusive rights exist for the shareholders but it does let investors know that the shares are considered for such, these rights or privileges may change based on the decisions made by the underlying company. "Rule 144 Stock" is an American term given to shares of stock subject to SEC Rule 144: Selling Restricted and Control Securities. Under Rule 144, restricted and controlled securities are acquired in unregistered form. Investors either purchase or take ownership of these securities through private sales from the issuing company or from an affiliate of the issuer. Investors wishing to sell these securities are subject to different rules than those selling traditional common or preferred stock; these individuals will only be allowed to liquidate their securities after meeting the specific conditions set forth by SEC Rule 144.
Security market line
Security market line is the representation of the capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk; the risk of an individual risky security reflects the volatility of the return from security rather than the return of the market portfolio. The risk in these individual risky securities reflects the systematic risk; the Y-intercept of the SML is equal to the risk-free interest rate. The slope of the SML is equal to the market risk premium and reflects the risk return trade off at a given time: S M L: E = R f + β i where: E is an expected return on security E is an expected return on market portfolio M β is a nondiversifiable or systematic risk RM is a market rate of return Rf is a risk-free rateWhen used in portfolio management, the SML represents the investment's opportunity cost. All the priced securities are plotted on the SML; the assets above the line are undervalued because for a given amount of risk, they yield a higher return.
The assets below the line are overvalued because for a given amount of risk, they yield a lower return. There is a question about. A rational investor will accept these assets though they yield sub-risk-free returns, because they will provide "recession insurance" as part of a well-diversified portfolio. Therefore, the SML continues in a straight line whether beta is negative. A different way of thinking about this is that the absolute value of beta represents the amount of risk associated with the asset, while the sign explains when the risk occurs. All of the portfolios on the SML have the same Treynor ratio as does the market portfolio, i.e. E − R f β i = E − R f. In fact, the slope of the SML is the Treynor ratio of the market portfolio since β M = 1. A stock picking rule of thumb for assets with positive beta is to buy if the Treynor ratio will be above the SML and sell if it will be below. Indeed, from the efficient market hypothesis, it follows. Therefore, all assets should equal to that of the market.
In consequence, if there is an asset whose Treynor ratio will be bigger than the market's this asset gives more return for unity of systematic risk, which contradicts the efficient market hypothesis. This abnormal extra return above the market's return at a given level of risk is what is called the alpha. Capital allocation line Capital market line Efficient frontier Market portfolio Modern portfolio theory Security characteristic line
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
A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, pooled investment products and bonds. Stock exchanges function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform. To be able to trade a security on a certain stock exchange, the security must be listed there. There is a central location at least for record keeping, but trade is less linked to a physical place, as modern markets use electronic communication networks, which give them advantages of increased speed and reduced cost of transactions.
Trade on an exchange is restricted to brokers. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges. Initial public offerings of stocks and bonds to investors is done in the primary market and subsequent trading is done in the secondary market. A stock exchange is the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks. There is no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange; such trading may be off over-the-counter. This is the usual way that bonds are traded. Stock exchanges are part of a global securities market. Stock exchanges serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.
The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian city clay tablets recording interest-bearing loans. There is little consensus among scholars as to; some see the key event as the Dutch East India Company's founding in 1602, while others point to earlier developments. Economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One of Europe's oldest stock exchanges is the Frankfurt Stock Exchange established in 1585 in Frankfurt am Main. In the Roman Republic, which existed for centuries before the Empire was founded, there were societates publicanorum, organizations of contractors or leaseholders who performed temple-building and other services for the government. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B. C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman and orator Cicero.
In one speech, Cicero mentions "shares that had a high price at the time". Such evidence, in Malmendier's view, suggests the instruments were tradable, with fluctuating values based on an organization's success; the societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval and early Renaissance periods. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully-fledged capital market: the stock market in its modern sense. In the early 1600s the Dutch East India Company became the first company in history to issue bonds and shares of stock to the general public; as Edward Stringham notes, "companies with transferable shares date back to classical Rome, but these were not enduring endeavors and no considerable secondary market existed."
The VOC, formed to build up the spice trade, operated as a colonial ruler in what is now Indonesia and beyond, a purview that included conducting military operations against the wishes of the exploited natives and of competing colonial powers. Control of the company was held by its directors, with ordinary shareholders not having much influence on management or access to the company's accounting statements. However, shareholders were rewarded well for their investment; the company paid an average dividend of over 16% per year from 1602 to 1650. Financial innovation in Amsterdam took many forms. In 1609, investors led by Isaac Le Maire formed history's first bear market syndicate, but their coordinated trading had only a modest impact in driving down share prices, which tended to remain robust throughout the 17th century. By the 1620s, the company was expanding its securities issuance with the first use of corporate bonds. Joseph de la Vega known as Joseph Penso de la Vega and by other variations of his name, was an Amsterdam trader from a Spanish Jewish family and a prolific writer as well as a successful businessman in 17th-century Amsterdam.
His 1688 book Confusion of Confusions explained the workings of the city's stock market. It was the earliest book about stock trading and inner workings of a stock market, taking the form of a dialogue between a merchant, a shareholder and a philosopher, the book described a market, sophisticated but prone to excesses, de la Vega of
NYSE Arca known as ArcaEx, an abbreviation of Archipelago Exchange, is an exchange on which both stocks and options are traded. It is headquartered in Chicago. Early reports indicated. In November 1994, Stuart Townsend and Gerald Putnam founded TerraNova Trading LLC, an electronic securities exchange, in Chicago, its product, started accepting trading orders on January 20, 1997. In 2005, Archipelago Holdings, the owner of ArcaEx, bought the Pacific Exchange, after what had been a close working relationship since 2001. On August 22, 2013 the Arca system sent multiple sequences to Nasdaq which overloaded the Securities Information Processor caused by reconnection issues to Nasdaq; this in turn caused a chain effect reaction. On Monday, March 20, 2017, the Arca platform stopped functioning due to a "system issue" and the exchange was unable to close trading for an undetermined number of funds. NYSE Arca's liquidity fee and rebate structure resembles that of other electronic communication networks.
In late 2006, it was the first one to offer NASDAQ-style fees on New York Stock Exchange-listed securities, a move, soon copied by NASDAQ and other electronic communication networks. NYSE Arca charges traders. Traders that add liquidity receive a $2.00 rebate per 1,000 shares. Traders that route orders out of the NYSE Arca system are charged $1.00 per 1,000 shares for Tape A securities and $4.00 per 1,000 shares for other securities. List of stock exchanges List of stock exchanges in the Americas List of stock exchange mergers in the Americas NYSE Arca Trading Information on NYSE.com NYSE to merge with Archipelago. Wikinews
Nassim Nicholas Taleb
Nassim Nicholas Taleb is a Lebanese–American essayist, scholar and former trader and risk analyst, whose work focuses on problems of randomness and uncertainty. His 2007 book The Black Swan has been described by The Sunday Times as one of the twelve most influential books since World War II. Taleb is an author and has been a professor at several universities, serving as a Distinguished Professor of Risk Engineering at the New York University Tandon School of Engineering since September 2008, he has been co-editor-in-chief of the academic journal Risk and Decision Analysis since September 2014. He has been a practitioner of mathematical finance, a hedge fund manager, a derivatives trader, is listed as a scientific adviser at Universa Investments, he criticized the risk management methods used by the finance industry and warned about financial crises, subsequently profiting from the late-2000s financial crisis. He advocates what he calls a "black swan robust" society, meaning a society that can withstand difficult-to-predict events.
He proposes antifragility in systems, that is, an ability to benefit and grow from a certain class of random events and volatility as well as "convex tinkering" as a method of scientific discovery, by which he means that decentralized experimentation outperforms directed research. Taleb was born in Amioun, Lebanon, to Minerva Ghosn and Nagib Taleb, a physician/oncologist and a researcher in anthropology, his parents were Greek Orthodox Lebanese of holding French citizenship. His grandfather, Fouad Nicolas Ghosn, his great-grandfather, Nicolas Ghosn, were both deputy prime ministers in the 1940s through the 1970s, his paternal grandfather Nassim Taleb was a supreme court judge and his great-great-great-great grandfather, Ibrahim Taleb, was a governor of Mount Lebanon in 1866. Taleb attended a French school there, the Grand Lycée Franco-Libanais in Beirut, his family saw its political prominence and wealth reduced by the Lebanese Civil War, which began in 1975. Taleb received his master of science degrees from the University of Paris.
He holds an MBA from the Wharton School at the University of Pennsylvania, a PhD in Management Science from the University of Paris, under the direction of Hélyette Geman. His dissertation focused on the mathematics of derivatives pricing. According to a profile in Le Monde, Taleb reads in ten languages. Taleb has been a practitioner of mathematical finance, a hedge fund manager, a derivatives trader, he is a scientific adviser at Universa Investments. Taleb considers himself less a businessman than an epistemologist of randomness, says that he used trading to attain independence and freedom from authority, he was a pioneer of tail risk hedging, intended to mitigate investors' exposure to extreme market moves. His business model has been to safeguard investors against crises while reaping rewards from rare events, thus his investment management career has included several jackpots followed by lengthy dry spells, he has held the following positions: managing director and proprietary trader at Credit Suisse UBS, worldwide chief proprietary arbitrage derivatives trader for currencies and non-dollar fixed income at First Boston, chief currency derivatives trader for Banque Indosuez, managing director and worldwide head of financial option arbitrage at CIBC Wood Gundy, derivatives arbitrage trader at Bankers Trust, proprietary trader at BNP Paribas, independent option market maker on the Chicago Mercantile Exchange and founder of Empirica Capital.
Taleb became financially independent after the crash of 1987 and was successful during the Nasdaq dive in 2000 as well as the financial crisis that began in 2007, a development which he attributed to the mismatch between reality and statistical distributions used in finance. Following this crisis, Taleb became an activist for what he called a "black swan robust society". Since 2007 he has been a Principal/Senior Scientific Adviser at Universa Investments in Santa Monica, California, a fund, based on the "black swan" idea and managed by former Empirica partner Mark Spitznagel; some of its separate funds made returns of 65% to 115% in October 2008. In a 2007 Wall Street Journal article, Taleb claimed he retired from trading in 2004, became a full-time author. However, he describes the nature of his involvement as "totally passive" from 2010 on. Taleb changed careers and became a mathematical researcher and philosophical essayist in 2006, has held positions at NYU's Courant Institute of Mathematical Sciences, at University of Massachusetts Amherst, at London Business School, at Oxford University.
He has been Distinguished Professor of Risk Engineering at New York University Tandon School of Engineering, since 2008. He was Distinguished Research Scholar at University of Oxford, he is co-Editor in Chief of the academic journal and Decision Analysis, jointly teaches regular courses with Paul Wilmott in London, participates in teaching courses toward the Certificate in Quantitative Finance. He is co-faculty at the New England Complex Systems Institute. In late 2015 Nassim, along with Robert J. Frey and Raphael Douady, formed the Real World Risk Institute "to build the principles and methodology for what we call real-world rigor, in decision making and codify a clear-cut way to approach... to provide executive education courses and issue two certificates." Taleb's five volume philosophical essay
A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators like the Bank of England and the U. S. Securities and Exchange Commission oversee capital markets to protect investors against fraud, among other duties. Modern capital markets are invariably hosted on computer-based electronic trading platforms; as an example, in the United States, any American citizen with an internet connection can create an account with TreasuryDirect and use it to buy bonds in the primary market, though sales to individuals form only a tiny fraction of the total volume of bonds sold. Various private companies provide browser-based platforms that allow individuals to buy shares and sometimes bonds in the secondary markets. There are many thousands of such systems, most serving only small parts of the overall capital markets.
Entities hosting the systems include stock exchanges, investment banks, government departments. Physically, the systems are hosted all over the world, though they tend to be concentrated in financial centres like London, New York, Hong Kong. A capital market can be either a secondary market. In primary market, new stock or bond issues are sold to investors via a mechanism known as underwriting; the main entities seeking to raise long-term funds on the primary capital markets are governments and business enterprises. Governments issue only bonds, whereas companies issue both equity and bonds; the main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, less wealthy individuals and investment banks trading on their own behalf. In the secondary market, existing securities are sold and bought among investors or traders on an exchange, over-the-counter, or elsewhere; the existence of secondary markets increases the willingness of investors in primary markets, as they know they are to be able to swiftly cash out their investments if the need arises.
A second important division falls between the bond markets. The money markets are used for the raising of short-term finance, sometimes for loans that are expected to be paid back as early as overnight. In contrast, the "capital markets" are used for the raising of long-term finance, such as the purchase of shares/equities, or for loans that are not expected to be paid back for at least a year. Funds borrowed from money markets are used for general operating expenses, to provide liquid assets for brief periods. For example, a company may have inbound payments from customers that have not yet cleared, but need immediate cash to pay its employees; when a company borrows from the primary capital markets the purpose is to invest in additional physical capital goods, which will be used to help increase its income. It can take many months or years before the investment generates sufficient return to pay back its cost, hence the finance is long term. Together, money markets and capital markets form the financial markets, as the term is narrowly understood.
The capital market is concerned with long-term finance. In the widest sense, it consists of a series of channels through which the savings of the community are made available for industrial and commercial enterprises and public authorities. Regular bank lending is not classed as a capital market transaction when loans are extended for a period longer than a year. First, regular bank loans are not securitized. Second, lending from banks is more regulated than capital market lending. Third, bank depositors tend to be more risk-averse than capital market investors; these three differences all act to limit institutional lending as a source of finance. Two additional differences, this time favoring lending by banks, are that banks are more accessible for small and medium-sized companies, that they have the ability to create money as they lend. In the 20th century, most company finance apart from share issues was raised by bank loans, but since about 1980 there has been an ongoing trend for disintermediation, where large and creditworthy companies have found they have to pay out less interest if they borrow directly from capital markets rather than from banks.
The tendency for companies to borrow from capital markets instead of banks has been strong in the United States. According to the Financial Times, capital markets overtook bank lending as the leading source of long-term finance in 2009, which reflects the risk aversion and bank regulation in the wake of the 2008 financial crisis. Compared to in the United States, companies in the European Union have a greater reliance on bank lending for funding. Efforts to enable companies to raise more funding through capital markets are being coordinated through the EU's Capital Markets Union initiative; when a government wants to raise long-term finance it will sell bonds in the capital markets. In the 20th and early 21st centuries, many governments would use investment banks to organize the sale of their bonds; the leading bank would underwrite the bonds, would head up a syndicate of brokers, some of whom might