Financial assets and the markets they inhabit

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Financial assets and markets

More recently, categories such as financial assets, brokers, traders, digital currencies, etc., were of interest to a limited number of people in certain professions. Today, everything related to investments, intangible assets or financial markets can be discussed at specialized forums by former engineers, schoolchildren, housewives and even humanities students. And this is quite a natural phenomenon. Providing access to the global financial market through the Internet has contributed to the development of online trading and everything connected with it. Everyone who wants to earn extra money, got the opportunity to become a full-fledged participant in e-commerce, and to take in this exciting process the place that corresponds to its capabilities and abilities.

Types of financial assets

If you decide to become a full-fledged trader, you will have to learn the key concepts of this type of activity. And above all, deal with such categories as “financial assets”, “trading instruments”, “financial assets market”.

When searching for definitions of what “financial assets” are on the World Wide Web, it is imperative to indicate that you are interested in this term from the position of an online trading participant. This is due to the fact that in economic theory, financial assets include everything from monetary gold to direct investment and payables / receivables. And, according to international standards of financial and management accounting, the assets in question are in no way connected with the category of novice trader. In this case, the term “digital financial assets” or simply “digital assets” is more appropriate.

The lack of a unified legislation regulating the issues of online trading of intangible assets is one of the main problems of this type of activity. But this issue must be resolved by joint efforts so that the US position does not contradict the laws of China or Japan. At the moment, the work of brokers is controlled by individual regulators who follow the legal rules of the country where they are registered.

Modern Internet brokers provide access not only to traditional trading tools, but also to new digital assets, including:

в—Џ Currency pairs.

в—Џ Shares, bonds, certificates of deposit, bills of exchange.

в—Џ Futures, options and swaps.

в—Џ Precious metals.

В What factors influence their cost?

When planning to earn using online trading, you need to know exactly in which direction you will work. You can not cover everything at once. Many participants in online trading only consider themselves to be traders, being in fact ordinary investors. They find an appropriate broker who provides such a service as PAMM accounts or automated trading and invest money, receiving (of course, no one gives 100% guarantees) a certain income. At the same time, it is possible to manage risks (the rule is simple: the amount of profit is inversely proportional to the probability of losing your investment), using signals, charts, indicators, that is, working like a real trader.

Each asset has its own nuances, about which you need to know as much as possible so that your activity brings profit. For example, when dealing with shares of enterprises, one must take into account that at the end of a quarter / year, many of them overstate financial performance, and this automatically affects the value of these assets. The rate of major world currencies depends on the political situation, economic indicators or the cost of strategic raw materials. For example, the increase in the price of oil is reflected in the exchange rate of those countries that are the main global suppliers of these raw materials. Such an unpredictable digital asset, like a cryptocurrency, can rise in price greatly if some serious investor decides to invest a decent amount in it. And to predict all the factors that influence the value of a particular asset is simply unrealistic. But if you work a lot in this direction, then you can achieve positive results and learn how to make money by entering into only profitable deals based on your own forecasts.

What a newbie trader should know about financial markets and trading on them

But not only the above analytical skills help the trader to earn in financial markets. Experienced experts recommend that anyone who plans to work, relying solely on their own intuition, immediately drop this idea. If you trust your “extrasensory” abilities, register with the bookmaker. There and the rates are higher, and you do not need to learn financial terms (every trader has to do it).

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For those who are determined to receive basic / additional income by entering into financial transactions with the help of online brokers, the following recommendations will be helpful:

в—Џ Carefully choose a trading platform. Study the maximum number of objective characteristics of a broker, not strongly trusting reviews on the Internet (they can be ordered by both resource owners and competitors). First of all, pay attention to the “age” of the company and the presence of reputable regulators.

в—Џ Do not forget that almost every broker provides additional opportunities for profit. For example, an affiliate program (there are companies that pay 50-100 dollars for each trader brought to the project).

в—Џ Always carefully study the tools that will help you make the right predictions for a profitable deal. These include: advisors, indicators, trader’s calculators, charts, individual programs and much more.

в—Џ You should not trust on all 100% demo accounts, in terms of potential profits that you earn with the help of virtual money. As a rule, even among the most honest brokers this indicator is always higher than in reality.

By adhering to the listed recommendations, being careful and carefully analyzing each step, you can eventually become a qualified trader and make this type of activity your main source of income.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Financial assets and the markets they inhabit

Financial markets come in a variety of flavors to accommodate the wide array of financial instruments or securities that have been found beneficial to both borrowers and lenders over the years. Primary markets are where newly created (issued) instruments are sold for the first time. Most securities are negotiable. In other words, they can be sold to other investors at will in what are called secondary markets. Stock exchanges, or secondary markets for ownership stakes in corporations called stocks (aka shares or equities), are the most well-known type, but there are also secondary markets for debt, including bonds (evidences of sums owed, IOUs), mortgages, and derivatives Derivatives are complex financial instruments, the prices of which are based on the prices of underlying assets, variables, or indices. Some investors use them to hedge (reduce) risks, while others (speculators) use them to increase risks. and other instruments. Not all secondary markets are organized as exchanges, centralized locations, like the New York Stock Exchange or the Chicago Board of Trade, for the sale of securities. Some are over-the-counter (OTC) markets run by dealers Businesses that buy and sell securities continuously at bid and ask prices, profiting from the difference or spread between the two prices. connected via various telecom devices (first by post and semaphore [flag signals], then by telegraph, then telephone, and now computer). Completely electronic markets have gained much ground in recent years and now dominate most trading. “Stock Exchanges: The Battle of the Bourses,” The Economist (31 May 2008), 77–79.

Money markets are used to trade instruments with less than a year to maturity (repayment of principal). Examples include the markets for T-bills (Treasury bills or short-term government bonds), commercial paper (short-term corporate bonds), banker’s acceptances (guaranteed bank funds, like a cashier’s check), negotiable certificates of deposit (large-denomination negotiable CDs, called NCDs), Fed funds (overnight loans of reserves between banks), call loans (overnight loans on the collateral of stock), repurchase agreements (short-term loans on the collateral of T-bills), and foreign exchange (currencies of other countries).

Securities with a year or more to maturity trade in capital markets. Some capital market instruments, called perpetuities, never mature or fall due. Equities (ownership claims on the assets and income of corporations) and perpetual interest-only loans are prime examples. (Some interest-only loans mature in fifteen or thirty years with a so-called balloon payment, in which the principal falls due all at once at the end of the loan.) Most capital market instruments, including mortgages (loans on real estate collateral Property pledged as security for the repayment of a loan. ), corporate bonds, government bonds, and commercial and consumer loans, have fixed maturities ranging from a year to several hundred years, though most capital market instruments issued today have maturities of thirty years or less. Figure 2.4 “Types of financial markets” briefly summarizes the differences between various types of financial markets.

Figure 2.4 Types of financial markets

Derivatives contracts trade in a third type of financial market. Derivatives allow investors to spread and share a wide variety of risks, from changes in interest rates and stock market indices quote.yahoo.com/m1?u to undesirable weather conditions www.cme.com/trading/prd/weather/index.html (too sunny for farmers, too rainy for amusement parks, too cold for orange growers, too hot for ski resorts). Financial derivatives are in some ways even more complicated than the derivatives in calculus, so they are discussed in detail in a separate chapter.

Some call financial markets “direct finance,” though most admit the term is a misnomer because the functioning of the markets is usually aided by one or more market facilitators, including brokers, dealers, brokerages, and investment banks. Brokers facilitate secondary markets by linking sellers to buyers of securities in exchange for a fee or a commission, a percentage of the sale price. Dealers “make a market” by continuously buying and selling securities, profiting from the spread, or the difference between the sale and purchase prices. (For example, a dealer might buy a certain type of bond at, say, $99 and resell it at $99.125, ten thousand times a day.) Brokerages engage in both brokering and dealing and usually also provide their clients with advice and information. Investment banks facilitate primary markets by underwriting (buying for resale to investors) stock and bond offerings, including initial public offerings (IPOs) of stocks, and by arranging direct placement A sale of financial securities, usually bonds, via direct negotiations with buyers, usually large institutional investors like insurance and investment companies. of bonds. Sometimes investment banks act merely as brokers, introducing securities issuers to investors, usually institutional investors like the financial intermediaries discussed below. Sometimes they act as dealers, buying the securities themselves for later (hopefully soon!) resale to investors. And sometimes they provide advice, usually regarding merger A merger occurs when two or more extant business firms combine into one through a pooling of interests or through purchase. and acquisition When one company takes a controlling interest in another; when one business buys another. . Investment banks took a beating during the financial crisis that began in 2007. Most of the major ones went bankrupt or merged with large commercial banks. Early reports of the death of investment banking turned out to be premature, but the sector is depressed at present; two large ones and numerous small ones, niche players called boutiques, remain. “American Finance: And Then There Were None. What the death of the investment bank means for Wall Street,” The Economist (27 September 2008), 85–86.

Stop and Think Box

In eighteenth-century Pennsylvania and Maryland, people could buy real estate, especially in urban areas, on so-called ground rent, in which they obtained clear title and ownership of the land (and any buildings or other improvements on it) in exchange for the promise to pay some percentage (usually 6) of the purchase price forever. What portion of the financial system did ground rents (some of which are still being paid) inhabit? How else might ground rents be described?

Ground rents were a form of market or direct finance. They were financial instruments or, more specifically, perpetual mortgages akin to interest-only loans.

2.5: Financial Markets

  • Contributed by No Attribution by request
  • Anonymous by request
  • In what ways can financial markets and instruments be grouped?

Financial markets come in a variety of flavors to accommodate the wide array of financial instruments or securities that have been found beneficial to both borrowers and lenders over the years. Primary markets are where newly created (issued) instruments are sold for the first time. Most securities are negotiable. In other words, they can be sold to other investors at will in what are called secondary markets. Stock exchanges, or secondary markets for ownership stakes in corporations called stocks (aka shares or equities), are the most well-known type, but there are also secondary markets for debt, including bonds (evidences of sums owed, IOUs), mortgages, and derivatives and other instruments. Not all secondary markets are organized as exchanges, centralized locations, like the New York Stock Exchange or the Chicago Board of Trade, for the sale of securities. Some are over-the-counter (OTC) markets run by dealers connected via various telecom devices (first by post and semaphore [flag signals], then by telegraph, then telephone, and now computer). Completely electronic markets have gained much ground in recent years and now dominate most trading.“Stock Exchanges: The Battle of the Bourses,” The Economist (31 May 2008), 77–79.

Figure 2.3 Nineteenth-century picture of male telegraph operator

Money markets are used to trade instruments with less than a year to maturity (repayment of principal). Examples include the markets for T-bills (Treasury bills or short-term government bonds), commercial paper (short-term corporate bonds), banker’s acceptances (guaranteed bank funds, like a cashier’s check), negotiable certificates of deposit (large-denomination negotiable CDs, called NCDs), Fed funds (overnight loans of reserves between banks), call loans (overnight loans on the collateral of stock), repurchase agreements (short-term loans on the collateral of T-bills), and foreign exchange (currencies of other countries).

Securities with a year or more to maturity trade in capital markets. Some capital market instruments, called perpetuities, never mature or fall due. Equities (ownership claims on the assets and income of corporations) and perpetual interest-only loans are prime examples. (Some interest-only loans mature in fifteen or thirty years with a so-called balloon payment, in which the principal falls due all at once at the end of the loan.) Most capital market instruments, including mortgages (loans on real estate collateral), corporate bonds, government bonds, and commercial and consumer loans, have fixed maturities ranging from a year to several hundred years, though most capital market instruments issued today have maturities of thirty years or less. Figure 2.4 “Types of financial markets” briefly summarizes the differences between various types of financial markets.

Figure 2.4 Types of financial markets

Derivatives contracts trade in a third type of financial market. Derivatives allow investors to spread and share a wide variety of risks, from changes in interest rates and stock market indicesquote.yahoo.com/m1?u to undesirable weather conditionswww.cme.com/trading/prd/weather/index.html (too sunny for farmers, too rainy for amusement parks, too cold for orange growers, too hot for ski resorts). Financial derivatives are in some ways even more complicated than the derivatives in calculus, so they are discussed in detail in a separate chapter.

Some call financial markets “direct finance,” though most admit the term is a misnomer because the functioning of the markets is usually aided by one or more market facilitators, including brokers, dealers, brokerages, and investment banks. Brokers facilitate secondary markets by linking sellers to buyers of securities in exchange for a fee or a commission, a percentage of the sale price. Dealers “make a market” by continuously buying and selling securities, profiting from the spread, or the difference between the sale and purchase prices. (For example, a dealer might buy a certain type of bond at, say, $99 and resell it at $99.125, ten thousand times a day.) Brokerages engage in both brokering and dealing and usually also provide their clients with advice and information. Investment banks facilitate primary markets by underwriting (buying for resale to investors) stock and bond offerings, including initial public offerings (IPOs) of stocks, and by arranging direct placement of bonds. Sometimes investment banks act merely as brokers, introducing securities issuers to investors, usually institutional investors like the financial intermediaries discussed below. Sometimes they act as dealers, buying the securities themselves for later (hopefully soon!) resale to investors. And sometimes they provide advice, usually regarding merger and acquisition. Investment banks took a beating during the financial crisis that began in 2007. Most of the major ones went bankrupt or merged with large commercial banks. Early reports of the death of investment banking turned out to be premature, but the sector is depressed at present; two large ones and numerous small ones, niche players called boutiques, remain.“American Finance: And Then There Were None. What the death of the investment bank means for Wall Street,” The Economist (27 September 2008), 85–86.

Stop and Think Box

In eighteenth-century Pennsylvania and Maryland, people could buy real estate, especially in urban areas, on so-called ground rent, in which they obtained clear title and ownership of the land (and any buildings or other improvements on it) in exchange for the promise to pay some percentage (usually 6) of the purchase price forever. What portion of the financial system did ground rents (some of which are still being paid) inhabit? How else might ground rents be described?

Ground rents were a form of market or direct finance. They were financial instruments or, more specifically, perpetual mortgages akin to interest-only loans.

Financial markets are increasingly international in scope. Integration of transatlantic financial markets began early in the nineteenth century and accelerated after the mid-nineteenth-century introduction of the transoceanic telegraph systems. The process reversed early in the twentieth century due to both world wars and the Cold War; the demise of the gold standard;John H. Wood, “The Demise of the Gold Standard,” Economic Perspectives (Nov. 1981): 13-23. and the creation of Bretton Woods, a system of fixed exchange rates, discretionary monetary policy, and capital immobility.economics.about.com/od/foreigntrade/a/bretton_woods.htm (We’ll explore these topics and a related matter, the so-called trilemma, or impossible trinity, in another chapter.) With the end of the Bretton Woods arrangement in the early 1970s and the Cold War in the late 1980s/early 1990s, financial globalization reversed course once again. Today, governments, corporations, and other securities issuers (borrowers) can sell bonds, called foreign bonds, in a foreign country denominated in that foreign country’s currency. (For example, the Mexican government can sell dollar-denominated bonds in U.S. markets.) Issuers can also sell Eurobonds or Eurocurrencies, bonds issued (created and sold) in foreign countries but denominated in the home country’s currency. (For example, U.S. companies can sell dollar-denominated bonds in London and U.S. dollars can be deposited in non-U.S. banks. Note that the term Euro has nothing to do with the euro, the currency of the European Union, but rather means “outside.” A Euro loan, therefore, could be a loan denominated in euro but made in London, New York, Tokyo, or Perth.) It is now also quite easy to invest in foreign stock exchanges,www.foreign-trade.com/resources/financel.htm many of which have grown in size and importance in the last few years, even if they struggled through the panic of 2008.

Stop and Think Box

To purchase the Louisiana Territory from Napoleon in 1803, the U.S. government sold long-term, dollar-denominated bonds in Europe. What portion of the financial system did those bonds inhabit? Be as specific as possible.

Those government bonds were Eurobonds because the U.S. government issued them overseas but denominated them in U.S. dollars.

  • Financial markets can be categorized or grouped by issuance (primary vs. secondary markets), type of instrument (stock, bond, derivative), or market organization (exchange or OTC).
  • Financial instruments can be grouped by time to maturity (money vs. capital) or type of obligation (stock, bond, derivative).

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