Stock Market
The stock market is a type of capital market that operates around the world in which variable income and fixed income are negotiated in a structured way, as well as the purchase and sale of goods that have a fixed plan, or a table business that has variable income through the purchase and sale of negotiable securities.
Allows the channeling of medium and long-term capital from investors to users. As much as to be able to have money or not at the same time, we can have a wide buy or a wide sell.
The set of rules and participants (issuers, intermediaries, investors, and other economic agents) is intended to allow the process of issuance, placement, distribution, and intermediation of securities registered in the National Registry of Securities or international can be deduced.
- Company shares and marketable securities equivalent to shares, as well as any other type of marketable securities that give the right to acquire shares or securities equivalent to shares, by conversion or by exercising the rights they confer.
- The participatory quotas of the savings banks and the participatory quotas of the association of the Spanish Confederation of Savings Banks.
- Bonds, obligations, and other similar values are representative of part of a loan, including convertible or exchangeable ones.
- Certificates, bonds, and mortgage participation.
- Securitization bonds.
- Participations and shares of collective investment institutions.
- Money market instruments, understanding by such the categories of instruments that are usually traded in the money market such as Treasury bills, certificates of deposit, and promissory notes, unless they are issued individually, excluding payment instruments derived from previous commercial operations that do not involve raising reimbursable funds.
- Preferred shares.
- Territorial certificates.
- The " warrants " and other derivative negotiable securities that confer the right to acquire or sell any other negotiable security, or that give the right to a cash settlement determined by reference, among others, to negotiable securities, currencies, interest rates or yields, raw materials, credit risk or other indices or measures.
- Others to which the legal or regulatory provisions attribute the condition of negotiable value.
Marketable securities are also considered, among others, options contracts, futures, swaps, forward interest rate agreements, and other derivative financial instrument contracts related to various matters: securities, currencies, raw materials, financial instruments, etc.
Stock Markets and the Financial System
An important feature of the new Western financial system is disintermediation: part of the funds go directly to the financial markets, instead of via the long detour of loans and deposits via banks.
The increased general interest in investing in the equity markets - for example through investment funds - has made an important contribution to this.
Famous Quotes by Traders
“Bottoms in the investment world don’t end with four-year lows, they end with 10- or 15-year lows.” – By Jim Rogers.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – By Warren Buffett
“The stock market is filled with individuals who know the price of everything, but the value of nothing.” – By Phillip Fisher
“In investing, what is comfortable is rarely profitable.” – By Robert Arnott.
“Every once in a while, the market does something so stupid it takes your breath away.” – By Jim Cramer.
“Know what you own, and know why you own it.” – By Peter Lynch.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – By Paul Samuelson.
“The four most dangerous words in investing are: ‘this time it’s different.'” – By Sir John Templeton.
“You get recessions, you have stock market declines. If you don’t understand what's going to happen, then you’re not ready, you won’t do well in the markets.” – By Peter Lynch.
“Wide diversification is only required when investors do not understand what they are doing.” – By Warren Buffett.
Stock Market Behavior
Equity markets have proven to be highly sensitive to market trends. Driven by optimism, investors sometimes tend to drive up the price of their shares (the so-called bull markets ). With pessimism, they do just the opposite (the so-called bear markets ). The assumption that there is always more or less a "price equilibrium" (because financial markets continue to follow the Gaussian distribution ) is belied by such phenomena.
Crashes
According to the Efficient Market Hypothesis, the price of stocks in the medium or long term can only be influenced by fundamental changes such as the expected profit or dividend payment. The stock market crash of 1987 ( Black Monday ) put this theory to the test. The Dow Jones index fell 22.6% in one day. This sudden collapse also raised big questions about rational choice theory and general equilibrium theory. Comparable cases include the stock market crash of 1929, the stock market crash of 1973-74, and the Internet bubble of 2000.
The exact cause of the 1987 stock market crash has never been identified. However, the cause of sudden large fluctuations is generally attributed to commonly used strategies such as Value at Risk. After the stock market crash of 1987, stock trading was halted worldwide for a while, because computers could not handle the enormous number of transactions. This allowed the Federal Reserve and many central banks to take measures to nip a financial crisis in the bud.
Irrational Behavior
Other studies seem to indicate that psychological factors - in this context certain forms of behavioral economics - can lead to "exaggerated" price movements by people anticipating patterns they believe they see too early, thereby undermining objectivity about the financial situation in the litigation comes. An example is the enormously increased self-confidence of shareholders when the company they invested in makes a small profit. Factors such as groupthink, mass hysteria, and euphoria also play an important role in this regard. A stock market crash is often described as a sudden sharp fall in stock prices of the shares listed on the stock exchange, in which panic plays a role in addition to economic factors. Still, other studies draw parallels between the stock markets and things like gambling. And of course, some media also play a very important role in influencing public opinion, for example through press releases; in the run-up to the year 2000, for example, there were plenty of references to the new economy, which offered the opportunity to make a lot of money quickly thanks to the rapidly rising stock prices.
Functionality
Accumulating Capital
Through the issuance of shares, capital flows from investors into listed companies.
Transfer Capital
The stock market provides a venue for the circulation of stocks.
Converting Capital
The stock market transforms non-capital monetary funds into productive capital.
Classification
Centralized Market
Concentrated market refers to the way that listed stocks are traded in a centralized public auction on the stock exchange. The trading commodities in the centralized market are standardized, and the bidding methods include computer automatic matching and manual matching. For example, the stock exchange in Taiwan uses computers to automatically trade, while the New York Stock Exchange in the United States uses brokers to walk around and shout to find the best buyers and sellers.
Overseas Market
The over-the-counter market (English: Over-the-counter ) refers to the trading behavior of securities in the form of bargaining at the business counters of securities firms, also known as "over-the-counter trading ". The over-the-counter market is also called "the counter market".
Take the over-the-counter market transactions in Taiwan as an example. The over-the-counter market in Taiwan takes 1,000 shares as the transaction unit, and the price fluctuation is limited to 10% of the reference price of the day (revised on June 1, 2015). The market is the same.
OTC stocks
- Publicly issued companies that apply to trade the securities (including stocks and corporate bonds) issued by them at the business premises of securities firms are called OTC applications, and stocks that are approved to be traded over the counter at the business premises of securities firms are called OTC stocks. That is to say, stocks that can be issued and circulated in the OTC market are called OTC stocks.
Emerging Stocks
- To provide a legal, safe and transparent trading market for the common shares of publicly issued companies that have applied for listing (over-the-counter) before they are listed for trading, Taiwan’s over-the-counter stock trading market has formulated the "emerging stock system" to allow applications for For emerging stock companies, investors can directly negotiate prices with the recommended securities firms when making transactions, or offer quotations for the recommended securities firms in advance, and after investors refer to their quotations, they can "negotiate" transactions with the recommended securities firms through securities brokers.
- Taking Taiwan's over-the-counter market as an example, the trading hours for emerging stocks are from 9:00 a.m. to 3:00 p.m., and there is no price limit.
Types of Investors
Investors participating in the securities market can be broadly divided into domestic and foreign natural persons (individual investors) and legal persons. According to the size of the investment amount, natural persons can be divided into retail investors, medium and real investors, large investors, or major shareholders of companies. In terms of legal persons, in Taiwan, there are mainly securities dealers, trust companies, and foreign-funded legal persons (such as foreign investment institutions and overseas funds), collectively referred to as the three major legal persons. Investors entrust and operate operators (investment trusts, investment consultants, trust companies, or securities firms) with assets of more than NT$5 million, which are operated by professional managers. In Taiwan, they are known as the fourth largest legal person. When the Taiwan stock market index fell sharply, the Taiwan government intervened in the stock market to reduce the decline in the market index. The National Stabilization Fund operated by the government and the four major government funds (postal remittance savings fund, civil servant retirement pension fund, labor pension fund, and labor insurance fund), is also a legal person investor participating in the securities market.
Analysis Method
Technical Analysis
Technical analysis is a method of analyzing the movement of market prices by analyzing historical charts to predict the future trend of market price changes. Stock technical analysis is an analysis method commonly used in the securities investment market.
Basic Analysis
The basic analysis method evaluates the investment value and reasonable value of stocks by analyzing the macroeconomic situation, industry conditions, and company operating conditions that determine the intrinsic value of stocks and affect stock prices, and compares them with stock market prices to form corresponding recommendations for buying and selling.
Price Volume Analysis
Price volume analysis is to observe the frequency of stock transactions by analyzing the transaction price and volume of stocks, to predict the future changes and trends of stocks so that decisions can be made in advance. The price volume analysis technique is a kind of analysis method which rises recently in the securities investment market.
Evolutionary Analysis
The evolutionary analysis is based on the theory of evolutionary securities, takes the life movement characteristics of stock market fluctuations as the main research object, and starts from the aspects of stock market metabolism, profit-seeking, adaptability, plasticity, stress, variability, and rhythm, to conduct dynamic tracking research on the direction and space of market fluctuations, and to provide the sum of methods for stock trading decision-making and risk assessment.
Classification
Methods of classification
There are many ways to classify securities markets:
- By the nature of the movement of securities ( primary, secondary ).
- By type of securities ( bond market, stock market, derivatives market, state and municipal securities market).
- By form of organization (organized and unorganized)
- According to the form of circulation (exchange and over-the-counter)
- By the territorial principle (international, world, national, and regional markets).
- By issuers (securities market of enterprises, government securities market, etc.).
- By terms (market of short-, medium-, long-term, and perpetual securities).
- By types of transactions (cash market - implies instant execution of transactions, forward market, etc.).
- According to other criteria.
Classification according to the nature of the movement of securities
- Primary market - the market in which the primary placement of newly issued securities takes place. This placement may be public ( IPO ) or closed, without a wide offer to the general public. The initial offering procedure may take place through the stock exchange or in another way.
- Secondary market - a market in which transactions are made with previously issued and passed the procedure for the initial placement of securities. The secondary market accounts for the main turnover of transactions with securities. It is with the secondary market that the novice investor is best acquainted since the secondary market is represented primarily by the stock exchange.
- The tertiary market covers trading, as a rule, unregistered on the exchange, that is, not listed, securities. It is also called the over-the-counter market or OTC (from the English over-the-counter market ). The third market has traditionally been used as a platform for large blocks of shares between institutional investors. With the development of the Internet, it has become available to private investors.
- The quaternary market ( English fourth market ) is an electronic system for trading large blocks of securities directly between institutional investors. The most famous fourth market systems are Instinet, POSIT, and Crossing Network.
Market Models
Historically, there are three conditional models of the stock market, depending on the banking or non-banking nature of financial intermediaries:
- Non-banking model (for example, the USA ) - non-banking securities companies act as intermediaries.
- Banking model (for example Germany ) - banks act as intermediaries.
- Mixed model (for example, Japan ) - both banks and non-banking companies are intermediaries.
