Posts Tagged ‘stocks’
Wednesday, July 29th, 2009
General Business Education – What is Investment Banking?
Investment bankers work with corporations, governments, institutional investors and high-net individuals to raise capital and provide financial advice. Their main functions are: 1) Underwriting and 2) Mergers &Acquisitions advisory (M&A).
Companies need cash to grow and expand so they go to investment banks to borrow capital. Investment banks help sell securities (debt and equity) to investors to help raise this cash. These securities come in the form of stocks, bonds, or loans.
There are many specialized functions at an investment bank, ranging from private wealth management (brokers for the rich) to risk managers (who make sure the bank isn’t taking too much risk). However, investment banks are most commonly broken down into 3 areas:
1) Corporate Finance
2) Sales & Trading
3) Equity Research
(I will discuss each of these in a later post)
Investment banks are different from commercial banks because they provide M&A and other financial advice, whereas commercial banks do not. Roles of commercial banks include, but not limited to, accepting money deposits and lending capital. Investment and commercial banks used to be completely separate entities but now some firms have evolved into a “one stop shopping.”
There are dozens of specialized functions at an investment bank, ranging from private wealth management (essentially, brokers to the rich) to risk managers (those who make sure the bank isn’t taking on too much risk). At most major investment banks, the corporate finance and sales and trading functions are among the largest and most important.
Which Investment Bank is the Best?
It’s hard to say which investment bank is the best since they all have different rankings in different categories, such as M&A and underwriting. In 2006, Citigroup was tops in total debt and equity underwriting volume, but wasn’t as great as Goldman Sachs in M&A advisory. Goldman Sachs is excellent in equity underwriting and M&A advisory but it’s not as strong in debt issuance.
The larger investment banks with commercial banking arms, such as Citigroup and JPMorgan, dominate the debt markets. This is because they have larger balance sheets (from customer deposits, and others), so they are able to leverage their size to take on more underwriting risk.
If you want to check out the rankings of investment banks and how they perform in several categories, you should look at “league tables.” The most common ones are published quarterly by Thomson, which is an unbiased source, as opposed to getting rankings from the investment banks themselves. League tables are important because they show the firm’s expertise in a given area and are used for pitches made to clients, along with a page with tombstones (previous deals done by an I-bank) to convince clients to use their service.
Tags: bonds, citigroup, commercial banks, corporate finance, debt securities, equity securities, goldman sachs, investment bankers, jpmorgan, league tables, loands, mergers & acquisitions, mergers and acquisitions adivsory, research, sales & trading, stocks, thomson, underwiting, what is investment banking
Posted in General Business Education | Comments Off
Thursday, July 2nd, 2009
Learn The Stock Market Lesson – The Mind of the Stock Market : Why Do Stock Prices Go Up?
The Fact:
Like many traders, I myself, once believed that prices go up when there are more buyers than sellers and down when there are more sellers than buyers. However, Dr. Alexander Elder stated in his book, “Trading For A Living,” that, although, the previous statement seems logical, it is not true. This is because the number of instruments, such as stocks or futures, bought and sold in any market is always equal by definition. If you want to buy a share of a stock, someone has to sell it to you. Likewise, if you want to sell short a certain share, someone has to buy it from you. It takes two to transact. Essentially, the number of stocks bought and sold is equal in the stock market just as the number of long and short positions in the futures market is always equal. If there is an odd amount, such as only one buyer or only one seller, there is no trade and therefore, there will be no price movement. Rather, the common logic and argument that people hold refer only to those willing to buy and sell.
So Why Does Price Rise And Fall Then?
Prices rise and fall due to the alterations in the intensity of greed and fear among buyers and sellers. This means that every change in price reflects the battle between the bulls and bears. Price rises when buyers feel confident and do not mind paying a little extra because they are expecting prices to rise even higher. When these optimistic bulls meet the fearful and defensive bears, the market rallies and continues as long as bull are greedy enough to meet sellers’ demands.
The more aggressive their feelings are, the sharper the rally is. For example, if buyers feel just a little stronger than sellers, the market rises slowly. It is the job of technical analysts to determine exactly when the buyers are strong and when they are not.
Similarly, the rally ends when many bulls lose their enthusiasm, causing the price to slide. There is now greed among bears and fear among bulls. That’s when the bears feel optimistic and do not care about selling short at lower prices. Bulls are now the fearful ones and they agree to buy only at a discount. As long as bears feel like winners, they continue to sell at lower prices. The downtrend continues until the bears start feeling cautious and refuse to sell at lower prices.
As you can see, the process is more complex than the view that stocks go up when there are more buyers than sellers and down when there are more sellers than buyers. Rather, it relates more to market “panics” in buying or selling. To conclude, there are never more buyers than sellers or more seller than buyers.
For more information, I recommend you to read Dr. Elder’s “Trading For A Living.” This was the first book that I read when I began my trading career and until this day, it is still one of my favorite books. The book covers a lot about trading psychology, which I mentioned in an earlier post that it is crucial to control your emotions. So if you guys haven’t already, I suggest you go to the nearest library and pick up his book or just go on Amazon and purchase it from there.
Tags: dr. alexander elder, fear, futures, greed, stock market, stock market lesson, stocks, the mind of the market, the stock market, trading for a living, trading psychology, why does price go up
Posted in Learn The Stock Market, Technical Analysis | 2 Comments »
Saturday, June 27th, 2009
Learn The Stock Market Lesson – Futures Trading – What are Futures?
Futures are not “direct” securities like stocks or bonds. They are examples of derivatives. Dr. Alexander Elder wrote in his second book, “Come Into My Trading Room,” that nine out of ten traders go bust in their first year. Futures offer traders some of the best rewards, but of course, with high risk to them. Like options, beginners tend to avoid futures because of its risk. Although futures might look dangerous at first, the actual danger lies within the people who trade them. As Elder states, “futures do not kill traders—poor money management kills traders.”
When you buy a stock, you own a part of the company. With futures, you do not own anything, but rather you enter into a contract for a future purchase of merchandise. These contracts deliver a specific quantity of a commodity by a certain date.
What is the difference between a futures contract and an options contract?
A futures contract is binding on both buyer and seller as opposed to options, where the buyer has the right but is not obligated to take delivery.
In futures, if the market goes against you, you have to keep adding money to your margin or get out of your trade at a loss. In order to exit the commitment before the futures contract’s delivery date, the holder of a futures position has to offset his/her position by either selling a long position or buying back a short position. This would close out the futures position and its contract obligations.
Like options, there are two main reasons why investors use futures: to speculate and to hedge (reduce risk).
Keep in mind that the main difference between futures and options is that an option grants the trader the right, not the obligation to fulfill the contract, whereas both traders of a futures contract must fulfill contract by the delivery date.
Tags: alexander elder, bonds, come into my trading room, derivative security, derivatives, difference between options and futures, direct securites, dr. alexander elder, futures contracts, futures market, futures trader, hedge, option contracts, option traders, options market, reduce risk, sepculate, stocks, what are futures
Posted in Learn The Stock Market | Comments Off
Monday, June 8th, 2009
Learn The Stock Market Lesson - What are Financial Derivatives?
Most of us have heard about the controversial uses of derivatives, the debates between whether they should or should not be regulated, and the amount of oversight there should be on them. Derivatives are the complex financial instruments that contributed to not only the collapse of the giant insurer AIG but also 3 of the largest bankruptcies in American history – WorldCom, Enron, and Global Crossing. I will be discussing a little more in-depth about its debate in my next post.
So what exactly are derivatives?
Derivatives refer to a general class of investments, rather than a specific type of investment like stocks or bonds. As the name suggests, derivatives are investment vehicles that are derived from other types of investments. In other words, it is a security whose price is dependent upon or derived from one or more underlying assets.
They are contracts between 2 or more parties and its value is determined by the fluctuation of another underlying asset, such as a commodity, equities (stocks), loans (bonds), currencies and more. For example, the changing value of crude oil futures depends primarily on the movement and the fluctuation of oil prices.
The most common types of derivatives are futures contracts, forward contracts, options and swaps, which I will be discussing further in a later post.
How are derivatives different from stocks and bonds?
Stocks – represent shares of ownership in something tangible, such as a corporation
Bonds – also represents something tangible since they are promises of loan repayments, or IOUs from a borrower
Derivatives – hybrid investments based on these more basic investments. And because they are hybrids, investing in derivatives is more complex, and often far more risky than investing in stocks or bonds.
What’s the purpose of derivatives?
Derivatives are generally used as a financial instrument to hedge, or reduce, risk for one party but can also be used for speculative purposes. Investors sometimes purchase and sell derivatives to manage the risk associated with the underlying asset, to protect against fluctuations in value, or to profit from periods of inactivity or decline. Don’t forget that these techniques can be quite complicated and risky.
Tags: AIG, bankruptcy, bonds, chapter 11 bankruptcy, derivatives, derivatives finance, derivatives trading, enron, financial instrument, forward contract, future contracts, futures, futures trading, global crossing, hybrid investment, investment, options, options trading, reduce risk, risky, stocks, swaps, underlying assets, worldcom
Posted in Learn The Stock Market | 1 Comment »
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Bullish Stock Patterns
Bullish Engulfing Pattern
Doji Pattern
Three White Soldier Pattern
Above Stomach Pattern
Hammer Pattern
Piercing Pattern
Harami Pattern
Morning Star Pattern
Bullish Kicker Pattern
Inverted Hammer Pattern
Moving Average Crossover Pattern
Price & Moving Average Crossover
Macd Crossover Pattern
Weekly Macd Crossover Pattern
Stochastic Crossover Pattern
High Volume Percentage Gain stocks
Relative Strength Index (Rsi) Moving Up
Bollinger Band Crossover (Lower)
Bollinger Band BCrossover Upper
Commodity Channel Index (Cci) Crossover
Three Outside Up Pattern
Bullish Side By Side Pattern
Rising Three Method Pattern
Three Line Strike Pattern
Last Engulfing Top Pattern
Three Line Strike Pattern
Gap Up Stocks
Bearish Stock Patterns
Bearish Hanging Man Pattern
Bearish Dark Cloud Cover Pattern
Bearish Harami Pattern
Bearish Evening Star Pattern
Bearish Kicker Pattern
Shooting Star Pattern
Weekly Stochastic Crossover Pattern
On Balance Volume (Obv) Pattern
Average True Range (Atr) Pattern
Moving Average Crossdown Pattern
Price & Moving Average Crossdown Pattern
Macd Crossdown Pattern
Weekly Macd Crossdown Pattern
Weekly Stochastic Crossdown Pattern
Day Volume Percentage Down Pattern
Relative Strength Index (Rsi) Crossdown Pattern
On Balance Volume (Obv) Moving Down Pattern
Average True Range (Atr) Moving Down Pattern
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