Draft: March 1, i. TRADING AND EXCHANGES: Market Microstructure for. Practitioners. Larry Harris. Fred V. Keenan Chair in Finance. Marshall School of. Harris - Trading and Exchanges. Market Microstructure for Practitioners () - Ebook download as PDF File .pdf), Text File .txt) or read book online. Trading. organization of markets. ▷ The book presents the economics of market microstructure in simple. English. RK. Trading and Exchanges.
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[PDF] Full Trading and Exchanges Market Microstructure for Practitioners ( Financial Management Association Survey and Synthesis) Unlimited. Editorial Reviews. Review. "Knowledge and information about the stock market are vital tools for investors as they shape their strategies and portfolios. Professor . Harris L. Trading and Exchanges: Market Microstructure for Practitioners. Файл формата pdf; размером 11,49 МБ. Добавлен пользователем garrynsk.
Trading is a zero-sum game when gains and losses are measured relative to the market average. In a zero-sum game, someone can win only if somebody else loses. On average, well-informed speculators and bluffers win, and poorly informed traders and foolish traders lose.
Informed traders can profit only to the extent that less informed traders are willing to lose to them. Poorly informed traders trade for many reasons. Investors use the markets to move money from the present to the future.
Borrowers do the opposite. Hedgers trade to manage financial risks they face. Asset exchangers trade one asset for another they value more. Gamblers trade to entertain themselves. Exchanges and brokerages design markets to minimize the search costs of trading. They usually organize markets so that everyone who wants to trade gathers at the same place.
A common gathering place helps traders find those traders who will offer the best prices. Exchanges and brokerages once organized their markets exclusively on physical trading floors. Now they can do so within computerized communications networks that allow downloaders and sellers to arrange their trades remotely. Electronic marketplaces have rapidly expanded as the costs of electronic communications technologies have dropped.
Most traders want to trade in well-established markets because other traders trade there. When many traders trade in the same place, arranging trades is very easy.
The attraction of traders to other traders makes it hard to start new markets. Entrepreneurs create new markets when old markets do not adequately meet the needs of a significant set of traders. Since traders face a diversity of trading problems, no single market can best meet every trader's needs.
Many diverse markets may form when exchanges and brokerages compete to attract traders.
Arbitrageurs ensure that prices do not vary much across markets. When prices diverge, they download in cheaper markets and sell in more expensive markets. The effect of their trading is to connect sellers in cheaper markets to downloaders in more expensive markets. They determine the balance of power between informed traders and uninformed traders, between public traders and professional traders, and between large traders and small traders.
Trading rules are very important. Markets work best when they trade fungible instruments. An instrument is fungible if one unit a share, a bond, a contract, etc.
If that is so, downloaders do not care which units they receive. Since all sellers offer identical units, downloaders can download from any seller who offers an attractive price.
Sellers likewise can sell to any downloader. Fungible instruments therefore are easier to trade than instruments that have idiosyncratic characteristics. In derivative markets, the benefits of fungible instruments cause trading to concentrate in just a few standardized contracts.
This section identifies these issues.
Watch for them as you read this book. Information asymmetries Traders who know more about values and traders who know more about what other traders intend to do have a great advantage over those who do not. Well-informed traders profit at the expense of less-informed traders. Less-informed traders therefore try to avoid well-informed traders. Pay attention to who is well-informed and to how traders learn about values.
Options The option to trade is valuable. People who write limit orders give free trading options to other traders. Clever traders can extract the value of these options. Pay attention to when traders create trading options and to how they prevent other traders from extracting their values. Externalities People create positive externalities when they do something that benefits other people without compensation.
People create negative externalities when they do something that harms other people without penalty. The most important externality in market microstructure is the order flow externality Traders who offer to trade give other traders valuable options to trade for which the offerers are not compensated.
The order flow externality attracts and binds traders to markets because they want to benefit from free trading options. Pay close attention to when, why, and how traders offer to trade. Also pay attention to how markets, brokerages, and dealers benefit from the order flow externality.
Market structure Market structure consists of the trading rules, the physical layout, the information presentation systems, and the information communication systems of a market. Market structure determines what traders can do and what they can know.
It therefore affects trader strategies, the power relationships among different types of traders, and ultimately trader profitability. Always consider what effects market structures have on trading strategies and on the balance of power between various types of traders.
Competition with free entry and exit Traders compete in markets to make profits. Trading strategies that generate large profits attract traders who want to participate in those profits. Their entry lowers the profits that everyone makes, on average. Conversely, traders quit using trading strategies that are not profitable, which allows remaining traders to make more profits, on average.
Wherever you see people competing, consider how the costs of entry and exit affect their ability to maintain profits or avoid losses. Communications and computing technologies Markets are essentially information-processing mechanisms. They process information about who wants to trade, how much, and at what prices.
The resulting prices aggregate information about fundamental values. The growth in information technologies has changed, and will continue to change, how people trade. Pay attention to the role of information-processing technologies in the markets. Price correlations Markets for similar instruments are closely related. They tend to have similar conditions, and they often compete fiercely with each other for order flow.
The order flow externality generally ensures that one market among a set of closely related markets will eventually dominate the others.
Pay attention to markets that trade similar instruments and to the differences among them that make them unique. These issues affect how markets compete with each other. Principal-agent problems Principal-agent problems arise when agents do what they want to do rather than what their principals want them to do.
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The most important principal-agent problem in market microstructure involves brokers and their clients. Brokers do not always do what you want them to do, and they may not work as hard on your behalf as you would. Pay close attention to how traders control their brokers.
Trustworthiness and creditworthiness People are trustworthy if they try to do what they say they will do. People are creditworthy if they can do what they say they will do. Since people often will not or cannot do what they promise, market institutions must be designed to effectively and inexpensively enforce contracts. Pay close attention to the mechanisms which ensure that traders will settle their trades. Attempts to solve trustworthiness and creditworthiness problems explain much of the structure of market institutions.
The zero-sum game All trades involve two or more parties. The accounting gains made by one side must equal the accounting losses suffered by the other side. Understanding the origins of trading profits therefore requires that we understand both sides of a trade. We must understand why traders on one side expect to profit, and why traders on the other side either are willing to lose or do not understand that they should expect to lose. Part I examines the structure of trading. Several chapters describe how markets are organized and regulated, and how traders trade in them.
Although much of the information is descriptive, the text also analyzes how various market structures affect trading strategies. Part II considers what benefits markets produce for traders and for the wider economy. We must address these questions in order to judge whether the markets are working well.
The first of the two chapters in this part of the book considers why people trade. The other chapter explains how markets benefit the whole economy. Your opinion may differ from mine. To understand how trading rules affect traders, you must first understand how traders behave.
The book therefore next devotes many chapters to understanding what various traders do. These chapters should be especially interesting to readers who want to become traders and to traders who want to improve their trading skills. Part III includes chapters that consider various speculative trading strategies. Part IV examines the traders who offer liquidity. Part V contains two chapters that will help you to better understand the origins of liquidity and volatility.
Both concepts are described in relation to the various trading strategies introduced in parts III and IV. We consider the problems of evaluating trader performance in part VI. You must understand these issues if you intend to manage brokers, or if you want to know why index markets are so popular. These chapters lay the foundation for understanding who profits, and who loses, from trading.
If you intend to trade for profit or invest your money with a money manager, the chapter on performance evaluation and prediction will be of great interest to you. Finally, part VII concludes with several chapters that consider the economics of various market structures. These chapters examine how markets are organized, how they compete with each other, and how they respond to extreme volatility. These chapters will obviously interest regulators and exchange officials.
They should also interest farsighted traders: Being able to predict how changes in rules, technologies, and competitive relationships affect markets distinguishes winning traders from losers. Numerous sidebars appear throughout the book. These sidebars contain examples, stories, and historical explanations that illustrate and illuminate points made in the text.
They are useful as mnemonic devices for remembering jargon and concepts. I beg your indulgence for the puns, wordplay, lighthearted jabs, and unsolicited opinions that appear in them. I took the examples that appear throughout the book from all types of markets and from many different countries.
A disproportionate number, however, involve equity trading in the United States because these markets are the best-known markets in the world. As noted above, most principles that apply to these markets also apply to all other markets. Some types of trades are illegal, many trades create significant tax liabilities, and many commercial relationships in trading create important legal liabilities.
If you trade, you must know the legal consequences of your actions. The purpose of this book is to examine economic issues in trading, not legal issues. The text addresses many legal issues because legal issues often have significant economic implications for the markets, and because economic issues often are the basis for legal regulation.
This book will help you to better understand the economic implications of laws that regulate securities, contracts, traders, and exchanges. It will also help you understand the economic bases for many regulations. It is not an authority for what the law is or for which laws you should pay attention to. Bulls and Bears Traders call rising markets bull markets and falling markets bear markets. According to legend, these terms originated from morbid contests that promoters once staged between bulls and bears.
Bulls fight by thrusting upward with their horns. In contrast, bears fight by striking downward with their claws. This image has generated a small cottage industry of artisans who create bull-fighting-bear sculptures that traders download to adorn their offices and living rooms. I am not a qualified legal adviser.
Consult a qualified attorney when you must address legal questions. When you master this subject, you will be able to trade more effectively, you will better appreciate the organization of our markets, and you will be able to form well-reasoned opinions about how the markets should be organized.
Markets have changed substantially during the last years, and they will continue to change in the next years. The current pace of change is fast, and is accelerating. By the time you read this, some specific descriptive information in this book will undoubtedly be dated. The economic principles governing markets and the traders in them, however, will remain the same. These concepts will help you understand all markets—past, present, and future.
If you are new to trading, you should read this chapter to help you appreciate the trading problems that people solve. If you are already quite familiar with trading, you also may want to read this chapter. Professor Harris's truly unique, unassailably practical, and plain English presentation offers investors, newcomers and veterans alike, valuable and easy to understand insights that heighten individual confidence and the opportunity for success.
A smarter, more informed investor is a more discriminating and successful investor. Writing with a clarity and a pace that Hemingway would have applauded, Larry Harris shines a bright light on both the latest theory and current practices, and he then probes deeply and thoughtfully into their implications for market participants.
Harris L. Trading and Exchanges: Market Microstructure for Practitioners
This book provides a wealth of institutional detail, and an integrated framework for understanding how markets actually work. It will surely be a standard reference book for all who work in or study the markets for many years to come. With his illustrious background you might suspect he knows of what he speaks. Moline is on the Iowa-Illinois border about miles west of Chicago. MM sells the oil to food processors and the meal to feedlot operators. The Gold- man trader agrees to allow the limit orders.
He then asks the traders there whether any- body wants to download Smithsonian Industries. The Goldman broker calls his block trading desk and tells them that he had to include The First Boston broker calls her client with her report.
He asks his assistant to page two floor brokers who gave him limit orders to hold in his book. MM downloads soybeans from farmers up and down the river and from both sides of the river. The specialist consults his limit order book and says that there are download limit orders totaling It crushes most of the beans to separate the oil from the meal.
Everybody involved starts making reports. The brokers then call one of their floor brokers and ask him to print the trade. He then asks whether that will fill her or- der. The specialist reports the trade to the exchange information systems. Within a few minutes.
She says Goldman Sachs downloads the remaining When they call in. In an effort to put a positive spin on this informa- tion.
Trading and Exchanges: Market Microstructure for Practitioners (a review)
They must be filled if the price drops to The Goldman broker asks how much she wants to download. The limit or- ders and the First Boston download order have precedence over the three primary downloaders of the block. After specifying grade. The farmers will deliver the beans in December. Sellers must deliver the beans in Chicago when the contracts expire. MM requires that all its traders must always hedge their exposed positions.
MM hedges extensively in the Chicago soybean futures markets. MM does not yet have downloaders for the beans or for the meal and oil that they will probably press from them. MM will be very exposed to price risk. The risk manager needs 99 futures contracts carloads X 3. After a few offers and counteroffers.
These quantities are ap- proximately the amount of oil and meal that millers produce when they crush 5. Unless specifically exempted. MM management is uncom- fortable with the price risk and does not want the firm to pay the costs of financing large. MM will lose money. To manage the risk in its business. The bean contract calls for the delivery of 5. By custom. When the farmers deliver their beans. After MM takes delivery. MM has a risk management program.
Management also is concerned that its traders may inadvertently place the firm into speculative positions in soybeans. To minimize the expo- sure of the firm to price risk. If the price of beans rises.
If the price of beans drops after MM pays for them. Until MM takes delivery on the beans and pays for them. He negotiates a download of carloads of beans from the cooperative. Trading in each contract starts about a year before it expires. The negotiators therefore discuss only the local price differential.
Although on average MM will probably break even. The oil contract calls for the delivery of If it falls. If the price rises. The delivery months are November. To reduce these risks. On the morning of October MM will make money. To hedge this risk. Contracts for eight delivery months are traded.
Prices are volatile because weather conditions make harvests unpredictable and because the demand for meat and hence for soy meal for feed fluctu- ates with the business cycle.
HIS is one of many futures brokerages with which MM maintains an account. This transaction is unusual because the cooperative nor- mally would exchange a contract short position rather than just a contract position. Jack reads it with a well-practiced poker face and then sticks it into a pocket. The broker sends the market sell order to the CBOT trading floor. Each trader has a seat on the ex- change. They watch the trading in the pit and immediately report trade prices as traders make them.
Day traders are speculators who may be willing to hold po- sitions through the trading session but rarely overnight. The traders are a diverse set of people. They are continuously acquiring and unwinding their positions.
Most traders are locals. The pit is a structure on the floor of the exchange in which the traders stand. They try not to hold large positions for more than a few minutes. Locals are typically one-person operations. The traders all have a pencil in one hand and a trade card in the other hand. The trader also reports that the cooperative will exchange a January short position of only 50 contracts with the beans in a transaction known as an exchange for physical in the futures markets and as a cash exchange in the grain trade.
The risk manager identifies him- self and instructs the broker to sell 49 January soybean futures contracts at the market. Some own their seat. The risk manager also instructs the broker to do an exchange of 50 contracts with the cooperative's broker.
Surrounding the pit are large screens that display the most recent trade prices to the trading crowd. She gives Jack MM's sell order. The CBOT has about 20 different trading pits on its main trading floor. Some scalpers and day traders also act as brokers for other traders. The risk manager therefore will have to sell 49 additional contracts upon delivery. The broker enters the order into a computer. The HIS clerk finds her floor trader.
Scalpers are dealers who download and sell for their own account. The inside looks like a miniature football stadium. Most also wear distinctive jackets. Above and to the side of the pit is a podium on which exchange price reporters stand. The remaining traders are brokers who work either for themselves or for large national firms. The jackets have large outside pock- ets for holding papers.
About traders fill the soybean futures pit. When MM takes delivery in December. The traders stand shoulder to shoulder on the bottom and on the steps. The bottom is flat. This de- sign makes it easier for everyone to see everyone else. The traders all wear large identification badges that can be seen from across the pit. The sides are terraced with steps that go all the way around the pit. Traders yell "sold" to accept a trader's bid or offer. Jack's trader accepts the bids from two traders at A cents and negoti- ates to sell three contracts with one and four contracts with another.
He lowers his offer to Jack likewise does not know whether the traders with whom he traded were trading for their own accounts or for others. By using both voice and hand signals. When Jack receives the order. At the end of the trading session.
Since MM is short 99 soybean contracts sold at an average price of After reporting the trade. Jack negotiates to sell the remaining 42 contracts at Some traders bid for A.
Central Time close of trading. The traders then negotiate the size of the trade. Traders therefore also use hand signals to make their bids and offers. They use fingers to indicate prices and sizes. MM has lost 6 cents per bushel on its new position. A trade clears when two traders both report that they traded the same quantity with each other at the same price.
The two traders do likewise. They shout out their bids and offers so that everyone can hear what they say. Shortly after the 1: Jack then reports the trades to his clerk. The clerk calls the Moline of- fice with the confirmation.
About 95 per-. He quickly writes the terms of the two trades and the two trader IDs on his trade card. Some traders are bidding A cents and others are offering at cents. The noise can be so great that few traders actually hear what they say. Jack can offer the beans for sale and hope that a downloader will accept the price. The risk manager posts the margin by transfer- ring Treasury bills worth Hand orientation also shows whether the trader wants to download or sell: Palm out indicates an offer to sell.
The ori- entation of the hand up or sideways shows whether they are expressing prices or quantities. After about five seconds. None of the traders with whom Jack traded knows Jack's order came from MM. The total dollar loss is 6 cents per bushel times 5. The acceptor also points at the other trader to get his or her attention and to make eye contact. Traders arrange trades by accepting another trader's bid or offer. Each of these contracts gives her the option to sell shares of Microsoft at 55 dollars per share any time before or on the third Friday in January.
To obtain these privileges. Lisa now thinks that Microsoft is overvalued. The options will lose their value. Lisa decides to download 20 Microsoft Jan- uary 55 put option contracts.
In either case. If the price of Microsoft falls. Lisa will decide in January to realize the gains on the options by selling them or by exercising them. If the price of Microsoft rises before then. If one of the members defaults.
If she sells the options. If it drops in value. The remaining reports are called out-trades. Although the capital gain will be larger in the stock than in the options.
She also had to demonstrate to the principal's satisfaction that she is financially able to withstand the potential losses that can be associated with options. BOTCC thus acts as the downloader for each seller and the seller for each downloader. This arrangement ensures that traders do not need to decide whether another trader is creditworthy before they trade. Lisa calls her securities brokerage. If she exercises them and sells her Microsoft stock for 55 dollars per share.
To reduce the potential losses. If she sold it today. Lisa had to con- vince a senior registered options principal at the brokerage that she under- stands how options work and the risks to which they can expose her. Occasionally they result from misunderstand- ings. On very rare occasions. Although traders negotiate their con- tracts with each other.
The traders must resolve their out-trades before trading starts the next day. Transcription errors gen- erally cause most out-trades. The stock has risen greatly in value since she bought it in for the split-adjusted equivalent of 5 dollars per share. To achieve her investment goals.
Several traders try to sell at 4. It also guar- antees performance on all contracts. Since the price of Microsoft has risen. Lisa decides to issue a limit order. The last two letters refer to the January 55 put contract. The broker then releases the order. The quote for the contract is 4. For this order. The brokerage's order-routing system sends the order electronically to the Pacific Exchange's order-routing system. After reaching her broker and giving him her account number.
The broker enters the order into his electronic order entry system. Although Lisa is initially quite pleased with the trade price. This system. The Exchange shows its order book overhead on large computer displays to a crowd of about 20 traders standing in front of the post where Microsoft options trade.
The Securities and Exchange Commission. Lisa confirms that the order is correct. The broker reports that the quote is now 4. After listening carefully to the broker.
After con- sulting an electronic list of available trading vehicles for MSFT the stock ticker symbol for Microsoft. Lisa asks for the current quote in the January 55 put option.
The first three letters refer to Microsoft. Although the price she obtained was good. He enters this information into his quotation system to obtain the quote that Lisa requested. When Lisa's order arrives. The broker also reports that Microsoft stock last traded at The brokerage. Some of these traders are brokers who represent their clients.
Upon hearing the quote. She instructs her broker to download 20 Microsoft January 55 put option contracts. To obtain the quote for this option. The broker confirms the trade with Lisa. Lisa asks for a quote for the Microsoft January 55 put option contract. The broker reports that the last trade in Microsoft was Sam receives phone calls from sales traders at various investment banks who would like to sell him bonds.
After receiving the list. Sam ex- plains that this price is too high. NSCC uses a book entry settlement system in which it transfers securities electronically from one account to another. Every day. Sam talks to them to keep abreast of market conditions.
Other times. He instead pro- poses to download the bond for 70 basis points over the rate of return implied by the on-the-run year Treasury bond. After performing some quick calculations. After examining his portfolio. Chase Manhattan.
Sam's clerk reports the trade to Sheltered Life's custodial bank. The sales traders sometimes offer newly issued bonds that their banks have under- written. The two traders continue negotiating until they agree to a price oflllVg. Sam believes that he will most likely ob- tain the type of bond he wants today at the best price from Salomon Broth- ers. Sam sees that it contains the IBM 7 Va s!
Sam now turns to his Bloomberg terminal to examine prices in the credit markets to get some idea of the price the bond should trade for. This morning. From many years of experience. Sam is al- ready familiar with the bond covenant the terms of the bond and with IBM's general creditworthiness. They both write up trade tickets and give them to their respective op- erations clerks to settle the trade. He calls up the sales trader who manages his account there and asks him to fax over a list of the long-term.
The sales trader quotes him an offering price of He decides that if he can get a good price. It will act as an escrow agent in a process known as delivery versus payment. The firm. A custodial bank is a firm that holds. Because Sam is a very big client. Sam has determined that he needs to download 50 million dol- lars of long-term corporate investment-grade bonds. Sam has decided that he would like to download bonds issued by a high-tech firm.
This bond trades in a very active market organized by Cantor Fitzgerald. Sam then calls the Salomon Brothers sales trader and asks him to quote a price for the bond. These transfers will settle Salomon's side of the trade. Salomon Brothers acts as its own custodian.
The traders then will attempt to reconcile the reports. Bill then tells Fred. Norm bids 1. On the third day after the trade. NSCC should receive both reports of the trade. While keeping Bill on the line. Bill tells Olive. NSCC will match the reports. There she sees that the approximate exchange rate is 1. If the two reports match per- fectly. Until the new operation starts to generate its own revenue. If the two reports do not match. Although BINC's bank is a large regional commercial bank.
Fred calls Norm because he believes he gen- erally receives good service from him. Af- ter verifying that BINC has sufficient dollars on deposit to download the pounds. NSCC will confirm the trade to both sides on the next day. Fred picks up another line and calls Norm. The Salomon operations clerk reports the trade directly to NSCC and arranges to transfer the bond to its account there. She first consults an Internet page created by Yahoo! Fred asks to sell 7 million dollars.
It has decided to open a manufacturing subsidiary in Scotland to gain a toehold in the European Community. BINC will need to convert dollars to British pounds to pay its rent and salaries. She then calls her banker.
The bank then will transfer the bond from its account to Sheltered Life's account and the money from Sheltered Life's account to the bank's account to complete the settlement for Sheltered Life. On the day of the trade. Bill asks Olive to hold while he calls the foreign exchange desk of his bank.
By convention. The regional bank takes the remain- ing thousand pounds from its pound accounts. Mean- while. Since the 5 million pounds cost the bank 0.
Fred and Norm then report the trade to their clerks. We Part I start in chapter 3 with a quick introduction to the trading industry. Structure kers. We start to consider the relative advantages of various trading systems in this chapter.
This chapter provides some background information about who trades. You may find this chapter most interesting for its discussions about how mar- kets prevent traders from engaging in various types of fraudulent activities. You can safely skip reading this chapter if you are already familiar with th The industry.
Chapter 4 describes how traders communicate their orders to the bro. The differences in how markets organize their trading are important because they affect the profitability of different types of traders. Trading In chapter 5. Chapter 7 discusses how brokers serve their clients. We describe the or- ders that traders use and examine the properties of those orders.
T he chapters in this part describe how traders arrange their trades. The discussion introduces important issues that affect how traders formulate optimal order submission strategies.
Chapter 6 describes how exchanges use order-driven market mechanisms to arrange trades. We carefully describe their roles as trade negotiators and as clearing and settlement agents. We also of establish important concepts about the origins of liquidity in this chapter. The trading industry has a download side and a sell side. Short sellers profit when they sell high and download low.
If you are interested only in understanding market structure. If you are new to trading. Traders with long positions profit when prices rise. We first consider who trades. This chapter is full of financial jargon and institutional detail. Proprietary traders trade for their own accounts. They try to download low and sell high. Traders on both sides of the trading industry regularly download and sell securities and contracts.
The terms "download side" and "sell side" refer to downloaders and sellers of exchange services. Traders have short positions when they have sold something that they do not own. Traders on the sell side sell liquidity to the download side.
Trading and Exchanges: Market Microstructure for Practitioners
They may arrange their own trades. Most of it is not necessary for understanding the remainder of this book. If you are al- Tready familiar with the industry. Traders are people who trade. The download side consists of traders who download exchange services. Liquidity is the most important of these services.
Brokers are also called agency traders.
The download and sell sides of the trading industry have nothing to do with whether a trader is a downloader or a seller of an instrument. Traders with short positions hope that prices will fall so they can redownload at a lower price. In par- ticular. A substantial fraction of this book considers how interactions between download-side and sell-side traders determine the price of liquidity.
Traders have long positions when they own something. Liquidity is the ability to trade when you want to trade. Then we characterize trading instruments and the markets where they trade. Proprietary traders engage in proprietary trading. When they redownload. The people and institutions who will ultimately benefit from the funds that investment sponsors hold are beneficiaries. These traders are download-side traders. Both types of traders help download-side traders trade when they want to trade.
They have income today that they would like to have available in the future. We discuss dealers in chapter For exam- ple. A sum- mary of download-side traders appears in table These institutions are known collectively as investment sponsors. They use the markets to download stocks and bonds to move their income from the present to the future. Dealers accommodate trades that their clients want to make by trading with them when their clients want to trade.
Investment advisers are also called investment counselors. Investment sponsors frequently employ investment advisers to manage their funds. Dealers profit when they download low and sell high. We discuss this problem and other download-side trading problems in chapter 8. Investment advisers often employ traders to implement their trading decisions.
Many download-side institutions are pension funds. Brokers arrange trades that their clients want to make by finding other traders who will trade with Traders often call large their clients. Table provides a summary of the sell side adopted it were able to of the trading industry.
We discuss brokers in chapter 7. Other exchanges have order-driven trading sys- tems that arrange trades by matching download and sell orders according to a set TABLE Those who quickly trade in subsequent chapters. Nonmembers trade by asking member- brokers to trade for them. Exchange traders may include dealers.
The word "wire" in wirehouse once referred to the Many sell-side firms employ traders who both deal and broker trades. We the telegraph to collect orders therefore must understand why the download side trades before we can under- from branch offices in distant stand when the sell side is profitable. Some exchanges only provide a forum where traders meet to arrange their trades as they see fit.
We introduce exchanges.This book explains what liquidity is, and where it comes from. MM downloads soybeans from farmers up and down the river and from both sides of the river. Several generous sponsors provided financial support for this project. The dealers then try to solve them at a profit. Order-driven exchanges are essentially brokerages because they arrange trades for their clients.
Trading rules are very important. It's outdated in some parts, but the core concepts are totally relevant and still very much foundational. They first draw up a list of their clients who have shown recent interest in Smithsonian In- dustries. They ultimately profit from investors, gamblers, and foolish traders. Both concepts are described in relation to the various trading strategies introduced in parts III and IV.
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