Lecture Notes on Stock Markets and Transactions

Introduction

• Host: Derek
• Topic: Overview of stock markets and transactions

Securities Markets Classification

• Money Market: Short-term securities (e.g., certificates of deposit)
• Capital Market: Long-term securities (e.g., stocks, bonds)
  • Further classified into:
    • Primary Market: New issues of securities sold to the public
      • Initial Public Offering (IPO): First public sale of a company's shares
      • Seasoned New Issues: New securities for already public companies
      • Prospectus: Required public offer document for securities
      • Marketing Choices:
        • Public offering: Securities offered to the public
        • Rights offering: Shares offered to existing shareholders
        • Private placement: Securities sold directly to selected investors
    • Secondary Market: Trading of already issued securities
      • Also known as the aftermarket
      • Transactions occur directly between investors, not involving the issuing company
      • Roles of Secondary Market:
        • Provides liquidity to security purchasers
        • Continuous pricing based on best available information

Types of Market Forums

• Organized Securities Exchange: Centralized marketplace for buying/selling securities (e.g., NYSE, NASDAQ)
  • Highly regulated; rules and procedures must be followed
• Over-the-Counter (OTC) Market: Decentralized market for direct trading without centralized exchange
  • Less regulated; includes smaller companies, corporate bonds, and derivatives

Market Conditions

• Bull Market: Rising prices, optimism, economic growth
  • Higher returns for investors
• Bear Market: Falling prices, pessimism, economic slowdown

Order Types in Trading

• Market Orders: Buy/sell at current market price for quick execution
  • Example: Buy at $10/share
• Limit Orders: Buy/sell at specified price; executed only if conditions are met
  • Example: Buy at $5/share only if price drops
• Stop-Loss Orders: Sell when market price reaches a specified lower price

Types of Securities Transactions

• Long Purchase: Buy and hold expecting price increase
  • Objective: Buy low, sell high
• Short Selling: Sell borrowed securities expecting price drop
  • Objective: Sell high, buy low
  • Steps:
    1. Initiate short sale (e.g., sell 100 shares at $50)
    2. Cover short sale (e.g., buy back 100 shares at $30)
  • Risks: Unlimited potential loss if prices increase; no dividends earned

Margin Trading

• Use borrowed funds to purchase securities
  • Purpose: Magnify returns
  • Margin Requirements: Set by Securities Commission (SC)
  • Example: $10,000 purchase with 60% margin (pay $6,000, borrow $4,000)
• Advantages:
  • Magnifies profits
  • Greater diversification of holdings
• Disadvantages:
  • Magnified losses
  • Cost of margin loan
  • Margin call risks

Market Indexes

• Hypothetical portfolios representing segments of financial markets
  • Measure stock price behavior over time
• Uses:
  • Gauge general market conditions
  • Compare portfolio performance to market
  • Study market cycles and trends

Conclusion

• Summary of key concepts in stock markets and their transactions
• Importance of understanding market mechanics for investors

Closing

• Thanks for watching, see you in the next video!