2nd week: Equity Market Flashcards
What is an equity?
A share in the ownership of a company, entitling the owner to payment of dividends and also to the right to vote at annual general meetings.
anyone can buy Public equity
What is Public Equity?
listed on a stock exchange and ‘admitted’ for trading
What is Private Equity?
Not publicly listed or traded
Held by special individuals
What is Market Cap?
The total value of shares according to market price
How do you calculate Market Cap?
share price * Total No. of issued shares
What is each share measured in?
british pennies
What is the Ex-dividend?
A point in time where if you buy that stock after that time you cannot receive the nearest dividend.
e.g. the last day they collect orders for closest payout
How often is a dividend paid?
full dividend: 12 months
interrim: 6 months
what is Stock BETA
Elasticity measure of the average percentage increase in share price when 1% rise in broad index of market prices
What is a defensive stock?
- Shares with BETA less than 1
- Not alter too much when theres a downturn
Tissue industry, everyone wants tissue whether its in a reccesion or a boom
What is a cyclical stock?
- Shares with BETA greater than 1
- Alters a lot when theres a downturn
e. g. tech industry, a lot of fluctuations depending on expectations
What is the calculations for P/E?
P/E =share price divided by eps
EPS is earnings per share
What is the role of the broker?
An exchange member executing one of these stock orders on behalf of a client
Their duty is to buy or sell at the best possible price: as high price as they get when selling
or as a low a price as they can get when buying.
What are the differing types of brokers?
Sales and trading:
execute trades on behalf of clients are usually described in their own earnings statements and annual reports as ‘sales and trading’divisions.
Retail broker
helping retail customers buy and sell equities and other securities and also manage their portfolios. (best descirbed as retail broker)
Corporate broker A specialised market niche, largely advisory, helping large companies, “ A uniquely UK concept, corporate brokers advise public companies on
everything from pitching their equity story to building a diverse shareholder register, navigating listing rules to managing results announcements
Why have Sales and Trading Brokers started to focus more on client trades and less on trading on their own behalf (proprietary trading)?
- the ‘Volcker rule’ in the 2013
- US Dodd-Frank act
what is the Vlocker rule
Federal regulation that generally prohibits banks from conducting certain investment activities
- -> aim to protect bank customers by preventing banks from making speculative investments
- -> prevent Investments which contributed to the 08 F.crisis
What is the Dodd-Frank Act?
legislation passed by Obama in response to 08 crisis
- -> target agents which were believed to cause the 08 crisis
- ->including banks, mortgage lenders, and credit rating agencies.
What are the ways to get direct access to the market without being a part of the LSE?
- -> dont have to be a member of the LSE
- -> • High-frequency trading funds: they use artificial intelligence to conduct short term proprietary trades
What are Order books?
n order book is an electronic list of buy and sell orders for a specific security or financial instrument organized by price level.
What does a level 1 screen show
- Bid offer spread
- Shows the best bid price (highest bided price)
- Shows the best offer price (lowest offer price)
what does a level 2 screen show
• Bottom half is different compared to the Level 1 screen
• Displays limit orders: shares waiting to be matched on the system/ orders waiting to be executed –> a buyer and seller has to matched in price for it to work
•
• Buyers and seller have a choice
• Patient: add to limiting book and their order may not be executed –>put out a price, and wait for the market to move in your direction
• Impatient: add to the market order, agreeing to match limit orders on the book at the book prices this is often more expensive
what is NMS
( normal market price)= approx.. the amount of share you can purchase on the given day, without moving the best bid or ask price –> there is a given amount, you can sell or buy to prevent price being to high.
Price is volatile due to the liquidity
What is the Regulation NMS (US) and the “Markets and
Financial Instruments Directive” (European Union)?
Regulation NMS
• Supported competition amongst multiple trading revenues for order flow
Since 1980s there has been a shift towards electronic trading
Regulation
• Played a huge part in these developments
• Removed monopolies on providing electronic order books
• Electronic books are regulated for being too expensive for what they order
what is algoritmic trading
uses a computer program that follows an algorithm to place a trade.
Faster than humans
