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Equities, Futures, & Options

Equities – Shares of stock in corporations Large number of buyers and sellers Access to reliable information Market Efficiency – Cost of shares fluctuate due to a variety of circumstances Number of shares Expectations Prospect for growth. Equities, Futures, & Options.

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Equities, Futures, & Options

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  1. Equities – • Shares of stock in corporations • Large number of buyers and sellers • Access to reliable information • Market Efficiency – • Cost of shares fluctuate due to a variety of circumstances • Number of shares • Expectations • Prospect for growth Equities, Futures, & Options

  2. Efficient Market Hypothesis – • The price of stocks is usually right • Bargains are not found easily • The EMH tries to explain this situation • Some investors believe that it does not matter which stocks you purchase • Portfolio Diversification • Do not put all your eggs in one basket • Buy stocks on the internet or use a stockbroker

  3. Organized Stock Exchanges • Securities Exchanges – place where buyers and sellers trade securities. • NYSE – New York Stock Exchange • Oldest, largest and most prestigious • Located on Wall Street - More than 3,000 stocks • Approx 1400 seats or memberships • Members pay to join and vote on the rules and regulations • Requirements relate to profitability and size

  4. Organized Stock Exchanges • AMEX – American Stock Exchange • Located in NYC – 1,000 Stocks • Second largest • Companies represented are smaller and more speculative • Regional Stock Exchanges – • Larger and smaller corporations • Chicago, Philadelphia, Boston, Memphis, and Pacific

  5. Organized Stock Exchanges • Global Stock Exchanges – • Sydney, Tokyo, Hong Kong • Assisted by advances in technology • Over-the-Counter Market – • Majority of stocks are traded here • Electronic marketplace for securities • National Market System – computer network • NASDAQ – Buy and sell stocks in all markets (NYSE, AMEX, and OTC) • Few OTC stocks pay dividends

  6. Stock Performance • Dow-Jones Industrial Average – (DJIA) • Most popular and widely used • Average closing price of 30 sample stocks • No longer a mathematical average • Percentage change of the index is most important • Standard & Poor’s 500 – (S&P 500) • Uses the price change of 500 stocks • Reports on stocks listed on the NYSE, AMEX, and OTC

  7. Stock Performance • Bull Market – • Strong Market • Prices move up • Bear Market – • Mean Market • Prices move down

  8. Futures • Time is an attribute of a financial asset • Spot Market • Immediate transaction at the prevailing price • Futures Market – Marketplace for futures contracts • Futures Contract – agreement to buy or sell in the future at a predetermined price • New York Mercantile Exchange

  9. Options Market • Contracts to buy or sell financial assets in the future • Option exists to back out • Call Option – buy a share of stock at a specific price in the future • Put Option – sell a share of stock at a specific price in the future

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