The racial composition of stock market ownership shows households headed by whites are nearly four and six times as likely to directly own stocks than households headed by blacks and Hispanics respectively. Retrieved 22 April Members of the financial industry generally claim high-frequency trading substantially improves market liquidity,  narrows bid-offer spread , lowers volatility and makes trading and investing cheaper for other market participants. This requires these two parties to agree on a price. The IEX speed bump—or trading slowdown—is microseconds , which the SEC ruled was within the 'immediately visible' parameter.
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Similar tendencies are to be found in other developed countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: A second transformation is the move to electronic trading to replace human trading of listed securities. Investors may temporarily move financial prices away from market equilibrium.
Over-reactions may occur—so that excessive optimism euphoria may drive prices unduly high or excessive pessimism may drive prices unduly low. Economists continue to debate whether financial markets are generally efficient.
According to one interpretation of the efficient-market hypothesis EMH , only changes in fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share prices beyond the short term, where random 'noise' in the system may prevail. The 'hard' efficient-market hypothesis does not explain the cause of events such as the crash in , when the Dow Jones Industrial Average plummeted This event demonstrated that share prices can fall dramatically even though no generally agreed upon definite cause has been found: Note that such events are predicted to occur strictly by chance , although very rarely.
It seems also to be the case more generally that many price movements beyond that which are predicted to occur 'randomly' are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period seems to confirm this. A 'soft' EMH has emerged which does not require that prices remain at or near equilibrium, but only that market participants not be able to systematically profit from any momentary market ' inefficiencies '.
Moreover, while EMH predicts that all price movement in the absence of change in fundamental information is random i. Various explanations for such large and apparently non-random price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and value at risk limits, theoretically could cause financial markets to overreact. But the best explanation seems to be that the distribution of stock market prices is non-Gaussian  in which case EMH, in any of its current forms, would not be strictly applicable.
Other research has shown that psychological factors may result in exaggerated statistically anomalous stock price movements contrary to EMH which assumes such behaviors 'cancel out'. Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise , e.
In the present context this means that a succession of good news items about a company may lead investors to overreact positively, driving the price up.
A period of good returns also boosts the investors' self-confidence, reducing their psychological risk threshold. Another phenomenon—also from psychology—that works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group.
An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group. In one paper the authors draw an analogy with gambling.
In times of market stress, however, the game becomes more like poker herding behavior takes over. The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. In the run-up to , the media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market.
Stock markets play an essential role in growing industries that ultimately affect the economy through transferring available funds from units that have excess funds savings to those who are suffering from funds deficit borrowings Padhi and Naik, In other words, capital markets facilitate funds movement between the above-mentioned units. This process leads to the enhancement of available financial resources which in turn affects the economic growth positively.
Moreover, both economic and financial theories argue that stock prices are affected by macroeconomic trends. Research carried out states mid-sized companies outperform large cap companies and smaller companies have higher returns historically.
Sometimes, the market seems to react irrationally to economic or financial news, even if that news is likely to have no real effect on the fundamental value of securities itself.
Therefore, the stock market may be swayed in either direction by press releases, rumors, euphoria and mass panic. Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market behavior difficult to predict.
Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally accepted. Behaviorists argue that investors often behave irrationally when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money.
The Dow Jones Industrial Average biggest gain in one day was A stock market crash is often defined as a sharp dip in share prices of stocks listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes end speculative economic bubbles. There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale.
An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market.
There have been a number of famous stock market crashes like the Wall Street Crash of , the stock market crash of —4 , the Black Monday of , the Dot-com bubble of , and the Stock Market Crash of One of the most famous stock market crashes started October 24, , on Black Thursday. It was the beginning of the Great Depression. Another famous crash took place on October 19, — Black Monday. The crash began in Hong Kong and quickly spread around the world.
By the end of October, stock markets in Hong Kong had fallen Black Monday itself was the largest one-day percentage decline in stock market history — the Dow Jones fell by The names "Black Monday" and "Black Tuesday" are also used for October 28—29, , which followed Terrible Thursday—the starting day of the stock market crash in The crash in raised some puzzles — main news and events did not predict the catastrophe and visible reasons for the collapse were not identified.
This event raised questions about many important assumptions of modern economics, namely, the theory of rational human conduct , the theory of market equilibrium and the efficient-market hypothesis.
For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange computers did not perform well owing to enormous quantity of trades being received at one time.
This halt in trading allowed the Federal Reserve System and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday. Since the early s, many of the largest exchanges have adopted electronic 'matching engines' to bring together buyers and sellers, replacing the open outcry system.
Electronic trading now accounts for the majority of trading in many developed countries. Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market.
The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. Eugene Stanley introduced a method to identify online precursors for stock market moves, using trading strategies based on search volume data provided by Google Trends. The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.
Such indices are usually market capitalization weighted, with the weights reflecting the contribution of the stock to the index. Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange-traded funds ETFs , stock index and stock options , equity swaps , single-stock futures , and stock index futures.
These last two may be traded on futures exchanges which are distinct from stock exchanges—their history traces back to commodity futures exchanges , or traded over-the-counter. As all of these products are only derived from stocks, they are sometimes considered to be traded in a hypothetical derivatives market , rather than the hypothetical stock market.
Stock that a trader does not actually own may be traded using short selling ; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales. In short selling, the trader borrows stock usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers then sells it on the market, betting that the price will fall.
The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose.
Exiting a short position by buying back the stock is called "covering. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most but not all stock markets. In margin buying, the trader borrows money at interest to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value.
A margin call is made if the total value of the investor's account cannot support the loss of the trade. Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales. Regulation of margin requirements by the Federal Reserve was implemented after the Crash of Before that, speculators typically only needed to put up as little as 10 percent or even less of the total investment represented by the stocks purchased.
Other rules may include the prohibition of free-riding: For the vast majority, this is an introduction to stock market investing. The game runs for 10 weeks. Many similar programs are found in secondary educational institutions across the world. There are many different approaches to investing. Many strategies can be classified as either fundamental analysis or technical analysis.
Fundamental analysis refers to analyzing companies by their financial statements found in SEC filings , business trends, general economic conditions, etc. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used by John W.
Henry and Ed Seykota , which uses price patterns and is also rooted in risk control and diversification. Additionally, many choose to invest via the index method. The principal aim of this strategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market which, in the U. Responsible investment emphasizes and requires a long term horizon on the basis of fundamental analysis only, avoiding hazards in the expected return of the investment; socially responsible investing is also recommended [ by whom?
According to much national or state legislation, a large array of fiscal obligations are taxed for capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market, in particular in the stock exchanges. These fiscal obligations vary from jurisdiction to jurisdiction. Some countries [ which? From Wikipedia, the free encyclopedia.
Foreign exchange Currency Exchange rate. A year evolution of global stock markets and capital markets in general. Courtyard of the Amsterdam Stock Exchange Beurs van Hendrick de Keyser in Dutch , the foremost centre of global securities markets in the 17th century.
List of stock market crashes. Thomson Reuters league tables. Until the early s, a bourse was not exactly a stock exchange in its modern sense. With the founding of the Dutch East India Company VOC in and the rise of Dutch capital markets in the early 17th century, the 'old' bourse a place to trade commodities , government and municipal bonds found a new purpose — a formal exchange that specialize in creating and sustaining secondary markets in the securities such as bonds and shares of stock issued by corporations — or a stock exchange as we know it today.
Retrieved December 18, Retrieved 11 Mar United States Census Bureau. Family Finances from to Federal Reserve Board of Governors. Does 'Irrationality' Disappear with Wealth?
Evidence from Expectations and Actions". The Journal of Finance. Retrieved March 5, The World's Oldest Share.
Retrieved 8 August Guinness World Records Limited Archived from the original on August 8, Retrieved August 8, Creating Order in Economic and Social Life. Retrieved 15 August The World's First Stock Exchange: Translated from the Dutch by Lynne Richards. Economics , Financial Markets: The potential of repositioning the financial 'meta-economy'. Futures , Volume 68, April , p. A Financial Revolution in the Habsburg Netherlands: Renten and Renteniers in the County of Holland, — University of California Press.
The Origins of Value: Yale School of Forestry and Environmental Studies, chapter 1, pp. Many of the financial products or instruments that we see today emerged during a relatively short period. In particular, merchants and bankers developed what we would today call securitization. Mutual funds and various other forms of structured finance that still exist today emerged in the 17th and 18th centuries in Holland.
As Richard Sylla notes, "In modern history, several nations had what some of us call financial revolutions.
These can be thought of as creating in a short period of time all the key components of a modern financial system. The first was the Dutch Republic four centuries ago.
Institutions and Organizations ; Chapter 14], pp. Boettke and Christopher J. Stringham and Nicholas A. Curott note, "Business ventures with multiple shareholders became popular with commenda contracts in medieval Italy Greif, , p. Yet the title of the world's first stock market deservedly goes to that of seventeenth-century Amsterdam, where an active secondary market in company shares emerged.
Other companies existed, but they were not as large and constituted a small portion of the stock market Israel  , —; Dehing and 't Hart , 54; dela Vega  , Archived from the original on June 11, Retrieved May 31, Making Economic Sense , 2nd edition. Retrieved August 14, Berkeley Business Law Journal. Lessons from the Crisis" PDF.
Journal of Financial Intermediation. Global Governance of Financial Systems: In the aftermath of the crash, several organizations argued that high-frequency trading was not to blame, and may even have been a major factor in minimizing and partially reversing the Flash Crash.
However, after almost five months of investigations, the U. Securities and Exchange Commission SEC and the Commodity Futures Trading Commission CFTC issued a joint report identifying the cause that set off the sequence of events leading to the Flash Crash  and concluding that the actions of high-frequency trading firms contributed to volatility during the crash.
In the Paris-based regulator of the nation European Union, the European Securities and Markets Authority , proposed time standards to span the EU, that would more accurately synchronize trading clocks "to within a nanosecond, or one-billionth of a second" to refine regulation of gateway-to-gateway latency time— "the speed at which trading venues acknowledge an order after receiving a trade request.
The fastest technologies give traders an advantage over other "slower" investors as they can change prices of the securities they trade. High-frequency trading comprises many different types of algorithms. High-frequency trading has been the subject of intense public focus and debate since the May 6, Flash Crash. In their joint report on the Flash Crash, the SEC and the CFTC stated that "market makers and other liquidity providers widened their quote spreads, others reduced offered liquidity, and a significant number withdrew completely from the markets"  during the flash crash.
Politicians, regulators, scholars, journalists and market participants have all raised concerns on both sides of the Atlantic. She said, "high frequency trading firms have a tremendous capacity to affect the stability and integrity of the equity markets. Currently, however, high frequency trading firms are subject to very little in the way of obligations either to protect that stability by promoting reasonable price continuity in tough times, or to refrain from exacerbating price volatility.
In an April speech, Berman argued: I worry that it may be too narrowly focused and myopic. The Chicago Federal Reserve letter of October , titled "How to keep markets safe in an era of high-speed trading", reports on the results of a survey of several dozen financial industry professionals including traders, brokers, and exchanges. The CFA Institute , a global association of investment professionals, advocated for reforms regarding high-frequency trading,  including:.
Exchanges offered a type of order called a "Flash" order on NASDAQ, it was called "Bolt" on the Bats stock exchange that allowed an order to lock the market post at the same price as an order on the other side of the book [ clarification needed ] for a small amount of time 5 milliseconds.
This order type was available to all participants but since HFT's adapted to the changes in market structure more quickly than others, they were able to use it to "jump the queue" and place their orders before other order types were allowed to trade at the given price. Currently, the majority of exchanges do not offer flash trading, or have discontinued it.
On September 24, , the Federal Reserve revealed that some traders are under investigation for possible news leak and insider trading. However, the news was released to the public in Washington D.
Octeg violated Nasdaq rules and failed to maintain proper supervision over its stock trading activities. Nasdaq determined the Getco subsidiary lacked reasonable oversight of its algo-driven high-frequency trading. Knight was found to have violated the SEC's market access rule, in effect since to prevent such mistakes. Regulators stated the HFT firm ignored dozens of error messages before its computers sent millions of unintended orders to the market.
According to the SEC's order, for at least two years Latour underestimated the amount of risk it was taking on with its trading activities. By using faulty calculations, Latour managed to buy and sell stocks without holding enough capital.
The SEC noted the case is the largest penalty for a violation of the net capital rule. In response to increased regulation, some   have argued that instead of promoting government intervention, it would be more efficient to focus on a solution that mitigates information asymmetries among traders and their backers. These exchanges offered three variations of controversial "Hide Not Slide"  orders and failed to accurately describe their priority to other orders.
The SEC found the exchanges disclosed complete and accurate information about the order types "only to some members, including certain high-frequency trading firms that provided input about how the orders would operate". The SEC stated that UBS failed to properly disclose to all subscribers of its dark pool "the existence of an order type that it pitched almost exclusively to market makers and high-frequency trading firms".
UBS broke the law by accepting and ranking hundreds of millions of orders  priced in increments of less than one cent, which is prohibited under Regulation NMS. The order type called PrimaryPegPlus enabled HFT firms "to place sub-penny-priced orders that jumped ahead of other orders submitted at legal, whole-penny prices". Nasdaq's disciplinary action stated that Citadel "failed to prevent the strategy from sending millions of orders to the exchanges with few or no executions.
This excessive messaging activity, which involved hundreds of thousands of orders for more than 19 million shares, occurred two to three times per day. Panther's computer algorithms placed and quickly canceled bids and offers in futures contracts including oil, metals, interest rates and foreign currencies, the U.
Commodity Futures Trading Commission said. The indictment stated that Coscia devised a high-frequency trading strategy to create a false impression of the available liquidity in the market, "and to fraudulently induce other market participants to react to the deceptive market information he created". The HFT firm Athena manipulated closing prices commonly used to track stock performance with "high-powered computers, complex algorithms and rapid-fire trades," the SEC said.
The regulatory action is one of the first market manipulation cases against a firm engaged in high-frequency trading. Reporting by Bloomberg noted the HFT industry is "besieged by accusations that it cheats slower investors. Advanced computerized trading platforms and market gateways are becoming standard tools of most types of traders, including high-frequency traders.
Broker-dealers now compete on routing order flow directly, in the fastest and most efficient manner, to the line handler where it undergoes a strict set of risk filters before hitting the execution venue s. Such performance is achieved with the use of hardware acceleration or even full-hardware processing of incoming market data , in association with high-speed communication protocols, such as 10 Gigabit Ethernet or PCI Express. More specifically, some companies provide full-hardware appliances based on FPGA technology to obtain sub-microsecond end-to-end market data processing.
Buy side traders made efforts to curb predatory HFT strategies. Brad Katsuyama , co-founder of the IEX , led a team that implemented THOR , a securities order-management system that splits large orders into smaller sub-orders that arrive at the same time to all the exchanges through the use of intentional delays. This largely prevents information leakage in the propagation of orders that high-speed traders can take advantage of.
The IEX speed bump—or trading slowdown—is microseconds , which the SEC ruled was within the 'immediately visible' parameter. The slowdown promises to impede HST ability "often [to] cancel dozens of orders for every trade they make". Unlike the IEX fixed length delay that retains the temporal ordering of messages as they are received by the platform, the spot FX platforms' 'speed bumps' reorder messages so the first message received is not necessarily that processed for matching first.
In short, the spot FX platforms' speed bumps seek to reduce the benefit of a participant being faster than others, as has been described in various academic papers.
From Wikipedia, the free encyclopedia. Spoofing finance and Layering finance. Retrieved 27 June Retrieved August 15, The New York Times.
Retrieved September 10, The Wall Street Journal. Retrieved July 12, UK fighting efforts to curb high-risk, volatile system, with industry lobby dominating advice given to Treasury". Retrieved 2 January Transactions of the American Institute of Electrical Engineers. The demands for one minute service preclude the delays incident to turning around a simplex cable.
This demand is not a theoretical one, for without such service our brokers cannot take advantage of the difference in quotations on a stock on the exchanges on either side of the Atlantic. Retrieved Sep 10, Archived from the original PDF on 25 February Retrieved June 29, Up against a bandsaw".
Retrieved May 12, Retrieved 8 July Securities and Exchange Commission. Retrieved August 20, Retrieved January 30, Buy Low Sell High: A High Frequency Trading Perspective.
Jovanovic, Boyan and Albert J. Retrieved 27 August Identifying Trader Type Pt. European Central Bank This supports regulatory concerns about the potential drawbacks of automated trading due to operational and transmission risks and implies that fragility can arise in the absence of order flow toxicity.
Globally, the flash crash is no flash in the pan". Retrieved 11 July London Stock Exchange Group. Archived from the original PDF on Der Spiegel in German. One Nobel Winner Thinks So". Retrieved July 2,
In financial markets, high-frequency trading (HFT) is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no single definition of HFT, among its key attributes are highly sophisticated algorithms, co-location, and very short-term investment horizons. Dear Twitpic Community - thank you for all the wonderful photos you have taken over the years. We have now placed Twitpic in an archived state. Delegation strategies for the NCLEX, Prioritization for the NCLEX, Infection Control for the NCLEX, FREE resources for the NCLEX, FREE NCLEX Quizzes for the NCLEX, FREE NCLEX exams for the NCLEX, Failed the NCLEX - Help is here.