|Pension Funds||Pooled investment fund with the objective of providing retirement funds to its participants|
|Insurance Companies||Provide life insurance and casualty insurance to its clients|
|Investment Funds||"open-end" (mutual funds) have a floating number of outstanding shares. The value of which is based on the Net Asset Value "closed-end" (investment trusts) have a fixed number of shares typically traded on major exchanges|
|Commercial Banks||Clearing banks offer a full banking service to individuals and businesses|
|Building Societies||Called Savings & Loans in the US, take deposits and lend money mainly for house purchases|
|Investment Banks||Corporate Finance|
|Venture Capital and M & A|
|Securities and FX Trading|
|Issuing new securities|
|Guarantee promissory notes, provide acceptance credit|
|Securities Houses||Stockbroking companies that have not been taken over|
|Central Banks||Control money supply and interest rates|
|manage national debt|
|note and coin issue|
|Lender of last resort|
|Discount Houses||operate the "discount market"|
|underwrite the weekly sale of treasury bills|
|market maker in short-term financial institutions|
Types Of Traders
There are two types of traders either commission brokers or locals.
Commission brokers are following the instructions of their clients and charge a commission for doing so.
Locals are trading on their own account.
These two types of trader can be put into three categories
Hedgers - they are trying to reduce the risk associated with any adverse price movements in the price of the underlying. A hedger normally owns a quantitiy of the underlying
Speculators - they are trying to make money from the movements in the price of the underlying
Scalpers - holding positions for very short periods of time (often minutes), trying to profit from small changes
Day Traders - holding positions for less than one trading day
Position Traders - holding positions for long periods of time, trying to profit from major movements in the market
Arbitrageurs - they are trying to make a riskless profit by simultaneously entering into transactions in two or more markets.
There is a fundamental difference between the use of forward contracts and options for hedging: Forward contracts are designed to neutralise risk by fixing the price that will be paid. Option contracts just provide insurance, however they can benefit from favourable price movements. This obviously costs a premium
There is an important difference between speculating using futures and options. Using futures the potential loss or gain is very large. Using options, no matter how bad things get the loss is limited to your premium.
Arbitrage is sometimes possible when the futures price of an asset gets out of line with its cash price. Arbitrage opportunities do not last long.
An execution trader is someone who is executing fund managers trades in the market and trying to find them the best price.
Someone who manages small funds is called a fund manager
Someone who manages the assets for a large institution is called a portfolio manager
Chief Investment Officer (CIO)
Someone responsible for the management of all the assets of a large business is called the chief investment officer
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