Securities market
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Securities Market . Investments and Portfolio Management MB 72. Outline. Meaning of Financial Markets Role of Financial Markets Types of Financial Markets Primary Markets

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Securities Market

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Securities market

Securities Market

Investments and Portfolio Management

MB 72


Outline

Outline

  • Meaning of Financial Markets

  • Role of Financial Markets

  • Types of Financial Markets

    • Primary Markets

    • Secondary

      • Stock Exchanges

      • Over-the-Counter Market

      • Third and Fourth Market

  • Mechanics of Trading

    • Types of Orders

    • Margin Trading


Financial markets

Financial Markets

  • A place where borrowers and lenders are brought in contact with one another

  • Help in allocation of scarce resources in the economy

  • Channeling savings into investments

  • Provide an economy’s link with the future


Primary markets

Primary Markets

  • New issues market which brings together the supply and demand or sources and uses for new capital funds

  • A market where securities are issued for the first time

  • contributes directly to capital formation

  • any increase in primary market activity leads to more investment, more capital formation


Secondary market

Secondary Market

  • Deals in existing securities; market for buying and selling of existing securities

  • does not directly contribute to capital formation

  • increase in volume of business in the secondary market does not mean more capital formation

  • Indirectly helps in capital formation

  • Secondary markets can be classified as:

    • Auction Markets

    • Negotiated Markets

  • Stock Exchanges are classified as auction markets

  • Over-the-Counter Market

  • What is a third market?

  • What is a fourth market?


Mechanics of trading

Mechanics of Trading

  • Open a brokerage account

    • cash account

    • margin account

  • Types of Orders

    • Market order

      • buy/sell securities at the best available price in the market

    • limit order

      • specifies a particular price to be met or bettered

    • stop order

      • specifies a certain price at which a market order is to take over


Margin trading

Margin Trading

  • A customer can pay part of the total amount due and borrow the remainder from the broker, who in turn typically borrows from a bank to finance customers.

  • Margin is that part of a transaction’s value that a customer must pay to initialize the transaction. It is part of the total value of the transaction that cannot be borrowed from the broker.

  • What is initial margin?

    • Part of a transaction’s value that a customer must pay to initialize a transaction

  • What is maintenance margin?

    • Minimum amount needed in the investors account at all times as compared to the market value

  • What is margin call?

    • A margin call is issued when the actual margin declines below the maintenance margin


Securities market

Market Value of

securities minus Amount Borrowed

Actual Margin = -----------------------------------------------------------

Market Value of Securities


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