Have you ever asked to receive your allowance early or asked to be paid early?

Have you ever asked to receive your allowance early or asked to be paid early?

This is referred to as futures market- a contract is issued and payment is rendered for some future activity.

EquitiesStocks that represent ownership shares in

corporations

Efficient Market HypothesisUsed to explain the pricing of equitiesStocks are always priced about right, and

bargains are hard to find

Portfolio DiversificationHolding a number of stock, so that increases

in some could offset unexpected declines in others

Stock BrokerA person who buys

or sells stockFrom other brokersAt a stock exchangeSupplies inventory

Organized Stock ExchangesThe New York Stock

ExchangeOldestLargestMost prestigiousLocated on Wall

StreetLists about 3,000

companiesHas about 1,400

seats, or memberships Members pay over

1,00,000 for each seat

The American Stock ExchangeAMEXHas about 1,000

stocks2nd largest, behind

NYSE4th largest stock

exchange in the country

Companies tend to be smaller than NYSE companies

Regional Stock ExchangesChicago,

Philadelphia, Pacific, etc.

Also in citiesSmaller stocks, but

today many stocks are dual and can be found on both NYSE and the RSE

Global Stock ExchangesDevelopments in

computer and electronic trading have linked this markets

Over-the-Counter MarketElectronic marketplace for securities not

listed or traded on an organized stock exchangeMajority of stocks sold this wayNational Market System (NMS)

Measures of Stock PerformanceDow-Jones Industrial

AverageMost popular and

widely usedDIJA focuses on

percentage change

Standard and Poor’s 500Uses the price

change of 500 representative stocks as an indicator

Uses index number (sum of 500 companies too high!)

Trading in the FutureSpot Market:

transaction made immediately at prevailing price

Future Markets: Buyer pays money today, and sellers delivers the commodity in the futureGrain and livestock in

the Midwest Ex. Chicago Board of

Trade

Trading in the Future, con.Options- contracts

that give investors the option to sell commodities in the future at a price decided on today

Call option- the right to BUY a share of stock at a specified price in the future

Put option- right to sell stock at a specified price in the future