Trading in shares

About exchanges

There are many stock exchanges around the world,having different rules,different legal requirements and subject to different tax regimes.They also vary widely in size and importance.The NYSE is the world's most important stock exchange,listing about 3,000 major US companies,such as IBM and GE.Many large foreign firms are also listed on the NYSE,mainly through American Depositary Receipts.Like the other major markets,the NYSE has stringent criteria for listing,mostly relating to the size and strength of the company.They usually verify:-
-number of shareholders
-size of annual earnings
-market value of the shares
-number of publicly held shares
The main purpose of these standards is to ensure that there is a fair and liquid market for the shares of the companies listed in NYSE and outside investors might not be disadvantaged at times.

Many unlisted securities have securities have traditionally been traded outside the official stock exchanges in the "over-the-counter" markets.In the US,the OTC is very large.Its a principal market where dealders make a market by holding an inventory of shares and offering continuous prices at which they will buy or sell.

Market-makers,known as "specialists" on the NYSE,are wholesale dealers in specific stocks who guarantee to buy or sell these stocks at all times to ensure liquidity.They make their profit on the spread.The difference between the bid price and the offer price is called spread.

Brokers buy and sell stocks on behalf of their clients,earning a commission on the transaction.Dealers buy and sell stocks on their own account.Although a broker may also be a dealer,they cannot do both in the same transcation.

The most common type of order is a market order,where the investor instructs the broker to buy or sell at the best price available at the time.Other types of orders:-
-limit order-investor specify the price of his order to buy of sell the shares to protect from highly fluctuation in the market and when the broker match that limit price and exceute the order.
some other orers used,such as stop orders etc.

Once a transaction has been agreed, the details are reported to the exchanges clearing system.Clearing is the process by which the exchange reconciles the details of every deal,as reported by both sides in each transaction.

Derivatives are financial instruments that are derived from assets such as equities,bonds and commoidities.Financial derivatives can be based on equities,bonds,exchange rates,interest rates and indices.By purchasing a contract that guarantees you a certain return if the market price of your holkings moves past a certain level,you can insure yourself against possible losses-this is known as hedging.


Bonds means promise to pay.Its mainly traded in government securities.In this a buyer wants to buy some commodities but still dont have sufficient funds so he go to third party then the third party will give bonds of that funds which further given by buyer to the seller.Seller will give back the commodities to the buyer.

Selling short is to sell a financial security that your do not won by borrowing shares from a securities house.It means that actually you don't have the shares but you know that the price of specific shares will go down till the closing time of market.So the market will sell your shares but for that you also have to buy same quantity,quality shares.So you will place two orders;one to sell and second one for buy.Now if the price of that shares go down than your prediction,you will get profit but visa-versa you face loss.

Professionally managed hedge funds have proliferated in recent years.The term hedge funds covers a wide range of investment activities;they do not only deal in derivatives.Some hedge funds take highly risky positions that are in no way a hedge against loss.

Q1)You purchase 32 shares on the NYSE.Is this an odd lot or a round lot?

Q2) I am a market-maker.my bid price is $20.Am i buying or selling?

Q3) A small foreign firm wants an American lising.which exchange is it most likely to approach,and why?

Q4) You are quoted $15.00/$15.25 for a stock.what is the spread?



FINANCIAL STATEMENS

There are three main statements for companies are:-
-Balance sheet
-Income statement
-Cash flow statement

A companyis balance sheet,income statement and cash flow statement are the first sources of information for an investor.But accounting practices differ and these statements offer only limited help in evaluating a company's prospects.In addition,auditors and company managers have conflicting objectives.Investors should be aware of the specific practices the company follows,what its statements do not reveal and how profit and revenue are recognized to be able to assess its present condition,gauge solvency and predict future prospects.