Equity exchanges and trading + Foreign exchanges and derivatives trading cards only related to essay questions Flashcards
What mechanisms, apart from market makers, has the industry evolved for providing liqudity in equity markets?
Brokerage: Break down orders into smaller manageable size and routing them where they can be best executed.
Investment bank desks: By providing execution of large deals through directly matching buyers with sellers (‘crossing’ of orders).
Interdealer or wholesale brokers: Act as intermediaries between institutions that may have excess or insufficient inventories. Because (unlike the exchanges) they offer anonymous trading, they allow inventory to be adjusted without impacting so much on market price.
How does the volume of foreign exchange trading compare with that required to finance trade and capital flows?
Foreign exchange market trading is over 50 times the size of underlying trade flows.
$6.6 trillion per day of FX trading. 49% foreign exchange swaps, 30% spot transactions, 15% outright forwards.
43% FX trades booked in London, 17% in US (mostly NY).
What are sources of revenue for exchanges?
Listing fees, Execution fees, sale of pricing information, post-trade services
What is algorithmic trading?
Using a computer to make decisions about the execution of an order, breaking it up into sub-orders and deciding the subsequent timing of trades in order to minimise price impact.
What are quantitative trading strategies?
Using computer models to formulate and then execute strategies for trading. Quantitative trading strategies operate over a longer investment horizon than HFT, seeking to hold and profit from positions over a period of days, weeks or even months. A number of active investment funds and hedge funds use quantitative trading strategies.
What is an options contract?
A financial agreement that grants the buyer the right, but not the obligation, to buy or sell a particular asset (e.g., a stock or currency (FX)) at a preset price within a given period.
