Market Microstructure and Strategies参考.ppt

12 Market Microstructure and Strategies Chapter Objectives Describe typical common stock transactions and their execution Explain the role of electronic communications networks (ECNs) Describe the regulation of stock transactions Explain how barriers to international stock transactions have been reduced Stock Market Transactions Market order to buy/sell at the best possible price Limit order is a market order with a specific price maximum or minimum Discount vs. full-service broker Placing an order via the Internet Margin Trading Buying stock on margin= borrowing to buy stock Federal Reserve sets margin requirements (%) or proportion of funds buyer must put down Used to dampen speculation and market crashes Currently 50%; half down, half borrowed Broker may set higher margin requirements Margin Trading, cont. Customer establishes account with broker (margin account) Initial margin—broker’s minimum margin requirement for stock purchase Maintenance margin—minimum proportion of equity/total value of stock borrowing period Margin Trading, cont. Margin trading magnifies returns to investor Investor must pay interest on borrowed funds Investor returns higher/lower with lower equity than a 100% purchase Margin Call Stock price falls below maintenance margin requirements Margin call is a request for cash to maintain maintenance margin Broker/lender may sell stock to protect loan Short Selling In a short sale, investor borrows and sells stock Promises to pay back stock later Short seller hopes stock price declines to provide gain Short seller covers dividend payments while borrowing stock Limited gain; unlimited losses Short Interest Ratio as market forecast Investing in Stock Indexes Investor may buy stock or stock derivative securities The value of derivative securities follow underlying stock prices or prices of specific stock portfolios (index) Lower transaction costs Stock index returns have matched actively managed portfolios Exchange-traded funds (ETFs) design