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Chapter 12 Sec . 3 Investing in Equities, Futures, and Options.

Chapter 12 Sec . 3 Investing in Equities, Futures, and Options. . Additionally to financial assets, investors may buy equities . - stocks that represent ownership share of a corporation. . Market Efficiency. What influences the price of equities?

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Chapter 12 Sec . 3 Investing in Equities, Futures, and Options.

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  1. Chapter 12 Sec. 3 Investing in Equities, Futures, and Options. • Additionally to financial assets, investors may buy equities. - stocks that represent ownership share of a corporation.

  2. Market Efficiency • What influences the price of equities? -Many factors but mostly EXPECTATIONS!! • Efficient Market Hypothesis (EMH)- the argument that stocks are always priced about right and that bargains are hard to find because they are followed closely by investors. • Portfolio diversification- the price of holding a large number of stocks so that increases in some can offset unexpected declines in others. (popular strategy)

  3. Who’s a broker? • A broker is a person who is licensed to buy and sell stocks, provide investment advice, and collect a commission on each purchase or sale.

  4. Buying Stocks • How can I buy stocks? 1. Opening an account with a broker firm - can buy, sell, manage portfolio 2. Stockbroker- a person who buys and sells equities for clients. http://www.sharebuilder.com/ https://us.etrade.com/home https://www.tdameritrade.com/welcome1.html

  5. Merrill Lynch • Wealth management division by BOA. • It has over 15,000 advisors and $2.2 trillion assets. It is the world’s largest brokerage. • In 2009, the firm as publicly owned and traded on the NYExchange under MER.

  6. Corporation Stocks Common Stock • basic ownership of a corp. (elect board members and control the company) Preferred Stock - Represents nonvoting ownership shares of the corporation.

  7. Organized Stock Exchanges • Securities exchanges- places where buyers and sellers can meet to trade securities. 1. NEW YORK STOCK EXCHANGE (NYSE) • The oldest, largest, and prestigious of the organized stock exchanges. • Located in New York City • Has about 1,400 seats, or memberships, that allow access to the trading floor. -Merrill Lynch may own as many as 20. • Members pay several million dollars for the seat. • List stocks for about 2,800 companies, these companies should meet the standards (such as size and financial stability).

  8. Bull vs. Bear Markets • Bull market- is a strong market with the prices moving up for several months or years in a row. • Bear market- is a “mean” market with the prices of equities falling sharply for several months of years in a row.

  9. 2. AMERICAN STOCK EXCHANGE • AMEX, located in NYC has about 750 listed stocks. • 2nd largest in the country • Companies listed tend to be smaller than those on the NYSE 3. REGIONAL STOCK EXCHANGES • Usually list companies very new or small to be listed on the top two exchanges. 4. GLOBAL STOCK EXCHANGES • Can be found throughout the world • Technology linked these markets so that major stocks can be traded around the clock, in the world.

  10. Over the counter markets (OTC) • Majority of the stocks in the U.S. are not traded on exchanges. • Instead they are traded on an over-the-counter market and electronic marketplace for securities that are no an organized exchange. • National Association of Securities Dealers Automated Quotation (NASDAQ) - world’s largest electronic stock market, cover over 80 countries. - More than 4,000 companies are listed on NASDAQ. • What is the difference between NYSE and NASDAQ? Almost the same… an investor who open and account with a broker firm may buy and sell stocks in both markets. When an investor places an order over the Internet to buy shares, the broker forwards the order to the exchange where the stock is traded and purchase is made there -NYSE- AMEX- NASDAQ

  11. Measures of Stocks Performance • DOW JONES INDUSTRIAL AVERGAE (DJIA) • The most popular measure of stock market performance on NYSE STANDARD & POOR’S 500 • It uses the price changes of 500 representatives stocks as an indicator of overall market performance - Measure stocks performance on NYSE, AMEX, OTC

  12. http://www.youtube.com/watch?v=qL2OxfWastY • http://www.youtube.com/watch?v=a27J3vWAlWM

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