Slide MGT305 Slide05

Trading in Financial

Trading in Financial

Markets

Markets

The Markets

•

Financial markets consists of

exchange-traded

and

over-the-counter

(OTC) markets.

•

_{Exchange-traded}

market has a role in

ensuring the contracts and organizing

trading.

•

_{Over-the-counter}

_{market is not officially}

Long and Short Positions in

Assets

•

_Long

is buy position.

•

_{Example: the purchase of 100 IBM shares}

Long and Short Positions in

Assets

•

_Short

is sell position.

•

_{Example: the sale of GBP1 million for}

dollars (exchange-traded) and the sale of

$1 million of General Motor’s bonds

Short Sales

• Short sales is selling an asset which is not owned

with the intention of buying it back later.

• The process is conducted through a broker who borrows shares from another client and sells them on an exchange.

• At some position, the investor will close out the

Short Sales

• The investor gains from a declined share price and vice versa.

• If, at any time, the broker runs out of shares to borrow, the investor is short-squeezed and forced to close out the position immediately, although

not ready to do so.