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.
