Equities

Stock is the most basic financial instrument also known as Equity or Share.


Stock prices in the US are usually of the order of magnitude of $100
In the UK they are typically £1
There is no real reason for the popularity of the number of digits after all the absolute level of the stock is irrelevant as an investor I am only interested in the percentage change.
The only difference is whether I buy tens or thousands of the stock to invest a given amount.


Interest rates up - share prices down - due to the opportunity cost of money elsewhere
Penny Stocks - these are low priced, highly speculative stocks of small companies


Should I refer to them as Stock or Equity ?

A share is also referred to as an equity share (or stock).
Stock is often used as a synonym for shares especially in the US.
In the UK and Australia stock can refer to other types of securities.
Unfortunately while shares is only used to refer to shares in a company, "stocks" is a much vaguer term.
In the US shares are common stock and the shareholders are the stockholders
In the UK "stocks" is frequently used to mean either shares or bonds


In the UK bonds are 70% of turnover in london
In New York almost all the turnover is equities (very few bonds are traded on the exchange)



Normal Shares (or Common Stock)

Entitled to dividend payments
These have voting rights - they can vote on important decisions not the day-to-day running of the company.




Preference Shares (or Preferred Stock)

Often has a fixed dividend (which is paid before the Normal shares)
These have no voting rights



Industries
wikipedia - industry, classification-benchmark


Too many shares
When a company raises capital by issuing new shares or issue shares in a takeover, the price will often fall.
This is simply because intially there are not enough buyers around to absorb all the new shares.
If it is known that the underwriters of a new issue have large amounts of shares to dispose of the price may be weak until these have been disposed of. Large amounts of shares "Overhanging the market".


There is a remarkable correlation between movements in the yields on equities and those on fixed-interest investments.


Company Profit Annoucements
You can see the share price of a company fall when a company reports good profits
The reason for this is probably profit-taking
In the weeks ahead of the announcement the share price rises as investors buy in expectation of the good figures.
By the time the figures are out the investors don't need to wait any longer so they sell the shares to make a profit.
This is an example of the market discounting news well in advance.


Speculators that have gone short will eventually have to buy to fulfil their obligation to deliver the shares
If maket makers sense there has been a lot of widescale shorting of a particular security they may deliberately move thier prices upwards. This is known as "Bear squeeze".
Often reports will say that prices rose on bear covering, even when the general trend of prices had been downwards.
This simply reflects the forced buying by speculators who had earlier sold short and does not neceaarily indicate a reversal of the markets downward trend.



When do they Settle ?

These settle T + 3



Create page Greeks
Delta is sensitivity to equity prices or equity index levels
Create a Derivatives page and move the 4 derivatives underneath level 5


(Equities > Global Depository Receipts) - create a new page


ADR - American Depository Recipt - many companies shares trade in the US as ADRs rather than trading in their own currencies.


The recipt for one or more of a foreign company's shares is held by a trustee and the recipt is traded rather than the shares themselves.


For example a BP ADR is worth 12 ordinary shares. The US investor avoids the inconvenience of collecting dividends and converting them into dollars. The sponsor bank takes care of this.


A more general theme is a Global Depository Recipt (GDR) which refers to using the same technique as an SDR for listing shares on exchanges outside of the US.


Fear Gauge

Barometer of US equity volatility (ie risk aversion)
measured by the Vix index of 30 day options written on the S&P 500 equity index




Important

In the early days, ownership of a company's stock was decided by a physical or bearer stock certificate. Now they are registered electronically (book-entry form)


© 2017 Better Solutions Limited. All Rights Reserved. © 2017 Better Solutions Limited

Top

Next