See Statistical analysis of financial marketsstatistical finance Much effort has gone into the study of financial markets and how prices vary with time. This is the basis of the so-called technical analysis method of attempting to predict future changes. One of the tenets of "technical analysis" is that market trends give an indication of the future, at least investment in the financial market types the short term.
The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesiswhich states that the next change is not correlated to the last change. The role of human psychology in price variations also plays a significant factor.
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Large amounts of volatility often indicate the presence of strong emotional factors playing into the price. Fear can cause excessive drops in price and greed can create bubbles.
In recent years the rise of algorithmic and high-frequency program trading has seen the adoption of momentum, ultra-short term moving average and other similar strategies which are based on technical as opposed to fundamental or theoretical concepts of market behaviour. The scale of changes in price over some unit of time is called the volatility. Large changes up or down are more likely than what one would calculate using a normal distribution with an estimated standard deviation.
Financial market slang[ edit ] Poison pillwhen a company issues more shares to prevent being bought out by another company, thereby increasing the number of outstanding shares to be bought by the hostile company making the bid to establish majority.
Types of Financial Markets
Bips, meaning "bps" or basis points. A basis point is a financial unit of measurement used to describe the magnitude of percent change in a variable. One basis point is the equivalent of one hundredth of a percent.
Quant, a quantitative analyst with advanced training in mathematics and statistical methods.
Learning Objective 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.
Rocket scientista financial consultant at the zenith of mathematical and computer programming skill. They are able to invent derivatives of high complexity and construct sophisticated pricing models.
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They generally handle the most advanced computing techniques adopted by the financial markets since the early s. Typically, they are physicists and engineers by training.
IPOstands for initial public offering, which is the process a new private company goes through to "go public" or become a publicly traded company on some index.
White Knighta friendly party in a takeover bid. Used to describe a party that buys the shares of one organization to help prevent against a hostile takeover of that organization by another party. Smurfinga deliberate structuring of payments or transactions to conceal it from regulators or other parties, a type of money laundering that is often illegal. Bid—ask spreadthe difference between the highest bid and the lowest offer.
Pipsmallest price move that investment in the financial market types given exchange rate makes based on market convention. Bullish, this term is use to refer to the fact that the market has an upward trend.
Foreign Exchange Markets Foreign Exchange Market is a type of financial market which is made up of banks, forex dealers, commercial companies, central banks, investment management firms, hedge funds, retail forex dealers, and investors. It is a global online network, here buyers and sellers are involved in the purchase and buying of foreign currencies. This market determines foreign exchange rates for every currency. The foreign exchange market works through financial institutions and operates on several levels.
Functions of financial markets[ edit ] Intermediary functions: The intermediary functions of financial markets include the following: Transfer of resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers. Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.
Productive usage: Financial markets allow for the productive use of the funds borrowed.
The enhancing the income and the gross national production. Capital formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country.
Price determination: Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and to the supply investment in the financial market types the mechanism called price discovery process.
Sale mechanism: Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets.
Information: The activities of the participants in the financial market binary options trading system 60 seconds in the generation and the consequent dissemination of information to the various segments of the market.
So as to reduce the cost of transaction of financial assets.
Financial Functions Providing the borrower with funds so as to enable them to carry out their investment plans. Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in production debentures. Providing liquidity in the market so as to facilitate trading of funds. Providing liquidity to commercial bank Facilitating credit creation.