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What is a Stockbroker?
In addition to actually trading stocks for their clients, stockbrokers may also offer advice to their clients on which stocks, mutual funds, etc. to buy. Online Some newer transaction services online in the form of a website interface. They usually offer low commissions, as low as one or two USD, and fast transaction rates, up to two seconds. History Philadelphia was the center of American finance during the first forty years of the new United States. In 1790, the country's first stock exchange was founded there and Chestnut Street was home to the nation's most powerful financial institutions. However, in the 1820s a shift to New York City began and for more than one hundred and fifty years Wall Street has been synonymous with the stockbrokerage business. A number of firms rose to prominence over that time with the top-ranked brokerages in the early 1950s being:
Since the 1980s stockbroking firms have also been allowed to be market makers as long as the appropriate Chinese walls are put in place. With the advent of automated stockbroking systems on the Internet the client often has no personal contact with his/her stockbroking firm. The stockbroker's system performs all the stockbroking functions: it obtains the best price from the market and executes and settles the trade. Today, most of the once well-known corporate brand names including mid-sized firms such as Smith Barney have been swallowed up by global financial conglomerates. Discount brokers (such as E-Trade, Scottrade, and TD Ameritrade) have taken a large share of the business by offering highly discounted commissions, but the companies do not offer investment advice in return--all they do is execute orders. Similar roles Roles similar to that of a stockbroker include investment advisor, financial advisor, and probably many others. A stockbroker may or may not be also an investment advisor, and vice versa. The Certified Financial Planner™ designation initially offered by the American College in Pennsylvania is considered by many to be the next educational step a stockbroker can take in order to be considered a legitimate and ethical financial consultant. Tips for using a stockbroker
When using a stockbroker for financial guidance, one must be made aware that they do get paid on a commission, based on the stock/mutual fund they sell, and also through Class Distinction/Operating Expense Fees/Services Fees/Shareholder Fees. Thus, a conflict of interest arises concerning a stockbroker who offers his/her service as a financial planner, because their revenue is generated as a direct result of your investment in the stock/mutual fund that they broker to you. Thus your return on investment may not be as great, and the advice they give you might not be in your best interest. However, some mutual funds and stocks can only be purchased through a broker: in such cases their services are required to purchase the financial instrument in question.
The pitch follows this pattern:
Acting as a principal Stockbrokers also sometimes or exclusively trade on their own behalf, as a principal, speculating that a share or other financial instrument will increase or decline in price. In such cases the term broker makes little sense and the individuals or firms trading in a principal capacity sometimes call themselves dealers, stock traders or simply traders. Transactions by stockbrokers in the US and UK In the US: When acting as an agent, the stockbroker typically charges the client a flat fee and/or a percentage-based commission for undertaking the trade, and the price quoted the client must be the best price available in the market. When acting as a principal, the trade could be with another market participant or one of the stockbroker's clients. When trading in a principal capacity with a client, the broker informs the client and charges the client a markup or markdown from the prevailing market price. In the UK: Stockbrokers act the same in the UK as in the US, except that when trading in a principal capacity with a client, the broker is obliged to inform the client and no commission is charged. Other jurisdictions are thought to have similar rules. What is a Boiler Room?
A boiler room usually has an undisclosed relationship with the company being promoted or undisclosed profit from the sale of the house stock they are promoting. A boiler room promotes (via telephone calls to brokerage clients or spam email) thinly traded stocks. The boiler room usually holds a large position in the stock and plans to dump it on brokerage clients at a high price. The boiler room usually has close ties to or the same owners of the company whose stock is being promoted. Some traits of a boiler room include presenting only good news about the stock to be sold, and discouraging outside research by customers or brokers working there. They often use phrases such as:
The term is likely to have originated from the cheap, hastily arranged office space used by such firms, often just a few desks in a the basement or utility room of an existing office building. The term is a fitting analogy due to the secretive nature of these firms, the connections with the company they are promoting and the high-pressure nature of their activities.
How to Find a Good Stockbroker Finding the right stockbroker is an important decision. What exactly does a stockbroker do?
Now that you know what a stockbroker does, the next question you need to ask yourself is: Do I want a full service or discount broker? A full service stockbroker will give you recommendations for securities that you should buy. A discount broker only places the order that you give. You need to determine if you want the professional advice from a stockbroker or do your own research and just place orders. People use full service brokers for many reasons which include helping you diversify your portfolio, helping you get in on that hot stock tip, getting the rare stocks from the international markets and to give you the most up to date information on your investments. Check with your stockbroker about the following:
Stockbrokers must be dedicated to achieving the financial goals of their clients by understanding their needs, by providing research, analysis, advice and opportunities and fast, accurate and superior service! Contact your state or provincial securities agency in order to verify the employment and disciplinary history of a securities salesperson and the salesperson's firm; find out if the investment is permitted to be sold; or file a complaint. You can find contact information for your securities regulator here. How Stockbrokers Were Selected Consumers’ Research Council of America has compiled a list of Top Stockbrokers throughout the United States by utilizing a point value system. This method uses a point value for criteria that we deemed valuable in determining the best stockbrokers. The criteria that was used and assessed a point value is as follows:
Similar studies have been done with other professions using a survey system. This type of study would ask fellow professionals whom they would recommend. We found this method to be more of a popularity contest; For instance, professionals who work in a large office have much more of a chance of being mentioned as opposed to a professional who has a small private practice. In addition, many professionals have a financial arrangement for back-and-forth referrals. For these reasons, we developed the point value system. Since this is a subjective call, there is no study that is 100% accurate. As with any profession, there will be some degree of variance in opinion. If you survey 100 clients from a particular stockbrokerage company on their satisfaction, you will undoubtedly hear variances in their level of satisfaction. This is really quite normal. We feel that a point value system takes out the personal and emotional factor and deals with factual criteria. We have made certain assumptions. For example, we feel that more years in practice is better than less years in practice; more education is better than less education and completing a rigorous course to obtain various "Series" licenses is better that not having done so. The stockbrokers list that we have compiled is current as of a certain date and other stockbrokers may have qualified since that date. Nonetheless, we feel that the list of the top stockbrokers is a good starting point for you to find a qualified specialist. No fees, donations, sponsorships or advertising are accepted from any individuals, professionals, securities firms, brokerage firms, financial institutions, corporations or associations. This policy is strictly adhered to insure an unbiased selection.
Brokerage Terms Front office: This is a description of the part of a brokerage firm that is "client facing". The sales staff, brokers and traders are part of the front office. Functions of the front office include acquisition and entry of orders, fulfillment of the orders, and all the regulatory reporting for the orders.
Prime brokerage: A service sold by investment banks to "hedge funds." (A hedge fund is a private investment fund charging a performance fee and typically open to only a limited number of investors, e.g., those in the United States, hedge funds are largely open to accredited investors only. Hedge Funds have grown in size and influence on the public securities and private investment markets. The following "core services" are typically bundled into the Prime Brokerage package:
In addition, certain prime brokers provide additional "value-added" services, which may include some or all of the following:
Retail broker: A retail broker is a brokerage firm that caters to the average investor or, in other words, the retail sector of investors - as opposed to the institutional sector of investors. Both discount and full-service firms are retail brokers. The majority of brokers who advertise on TV are retail brokers. Low cost broker: A low cost brokerage can be considered to be a special case of a discount brokerage which functions in a similar way to a dividend reinvestment program. ShareBuilder, BUYandHOLD, and FolioFN are the better known examples of such low cost brokers. Low cost brokers are generally less expensive for an investor who invests in small amounts (say, fixed dollar amounts) and who is not particular that the stock trade must happen in real time. Low cost brokers execute orders only a few times a day by aggregating orders from a large number of small investors into one or more block trades which are made at certain specific times during the day. Such block trades are also sometimes referred to as window trades. Window trades help lower costs in two ways:
Since investor money is pooled before stocks are bought or sold, it enables investors to contribute small amounts of cash using which fractional shares of specific stocks can be purchased. This is usually not possible with a regular stock broker. Low cost brokers also provide real-time trades but these are usually (but not necessarily) charged a higher commission
Famous Stockbrokers
What is a Stock Trader?
Individuals or firms trading as their principal capacity are called stock traders or simply traders. The stock trader is usually a professional. However, many people across the world can call themselves stock traders/investors or part-time stock traders/investors, despite having another profession in parallel with their regular trading activities in the financial markets. When a stock trader/investor has clients, and acts as a money manager or adviser with the intention of adding value to his clients finances, he is also called a financial adviser or manager. In this case, the financial manager could be an independent professional or a large bank corporation employee. This may include managers dealing with investment funds, hedge funds, mutual funds, and pension funds, or other professionals in equity investment, fund management, and wealth management. A very active stock trader who holds positions for a very short time and makes several trades each day is a day trader. Several different types of stock trading or investing exist including day trading, swing trading, market making, trend following, scalping (trading), momentum trading, short-term countertrend trading, trading the news, and arbitrage. In the case of longer-term trend following, some trades may last longer than several months. Methodology Stock traders/investors usually need a stockbroker, such as a bank or a brokerage firm, as an intermediate. Since the spread of the Internet banking, it is usual to use an Internet connection to manage their own financial portfolios, including ordering the sell/buying orders, set stop losses prices and define buying/selling prices. Using the Internet, specialized software and a personal computer, stock traders/investors make use of technical analysis and fundamental analysis to help them in the decision process. They utilize also several advising and information resources based on the Internet and the media, such as financial/business news and data firms (Reuters, Bloomberg, Financial Times, Yahoo! Finance, MSN Money, AFX News, Newratings, Forbes, BusinessWeek, Hoover's). They exclusively trade on their own behalf, as a principal, investing money on a share or other financial instrument, which they believe will increase in price aiming to sell it later with earnings. Expenses, costs and risk Trading activities are not free. First of all, they have a considerably high level of risk, uncertainty and complexity, especially for unwise and inexperienced stock traders/investors seeking for an easy way to make money quickly. In addition, stock traders/investors face several costs such as commissions, taxes and fees to be paid for the brokerage and other services, like the buying/selling orders placed at the stock exchange. According to each National or State legislation, a large array of fiscal obligations must be respected, and taxes are charged by the State over the transactions and earnings. Beyond these costs, the opportunity costs of money and time, the currency risk, the financial risk, and all the Internet Service Provider, data and news agency services and electricity consumption expenses must be added. Stock Picking Although many companies offer courses in stock picking, and numerous experts report success through Technical Analysis and Fundamental Analysis, many economists and academics state that because of Efficient market theory it is unlikely that any amount of analysis can help an investor make any gains above the stock market itself. In a normal distribution of investors, many academics believe that the richest are simply outliers in such a distribution (e.g. in a game of chance, they have flipped heads twenty years in a row). For this reason most academics and economists recommend that investors invest in funds that follow an index in the market, i.e. long-term and well-diversified investments. Dart Board Method Financial journals and newspapers such as the Wall Street Journal have done articles on stock picking in the past. One famous article involved a stock picking contest between a panel of Wall Street experts, the public and a dart board. One member was elected to throw darts at the Journal's stock page in order to select a portfolio. At the end of the experiment, the public and the dart board both beat the board of Wall Street experts. Was the dart board more savvy? The dart board's triumph over the Wall Street experts can be attributed to chance (one could also attribute the dart board losing to the experts to chance as well).
Day Trading
Some of the more commonly day-traded financial instruments are stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures. Day trading used to be the preserve of financial firms and professional investors and speculators. Many day traders are bank or investment firms employees working as specialists in equity investment and fund management. However, day trading has become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet. Due to the high profits (and losses) that day trading makes possible, these traders are sometimes portrayed as "bandits" or "gamblers" by other investors. The price of financial instruments (here, stocks) can vary greatly within the same trading day Characteristics Trade frequency Although collectively called day trading, there are many sub-trading styles within the whole "day trading" tree. A day trader is not necessarily very active. Depending on one's trading strategy, the number of trades made in a day may vary from a few to hundreds. Some day traders focus on very short or short-term trading, in which a trade may last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage. Some day traders focus only on momenta or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders. Overnight position Traditionally it is suggested day traders should always settle their positions before the market close of the trading day to avoid the risk of price gaps (differences between the previous day's close and the next day's open price) at the open. Some day traders consider this to be a golden rule to be obeyed at all times. However, some day traders believe it is acceptable to stay with a position after the market closes as long as it is still following a favorable trend. Day traders often borrow money to trade. Since margin interests are typically only charged on overnight balances, the extra costs discourage them from holding positions overnight. Profit and risks Due to the nature of financial leverage and the rapid returns that are possible, day trading can be extremely profitable, and high-risk profile traders can generate huge percentage returns. Some day traders manage to earn millions per year solely by day trading. Nevertheless day trading can become very risky, especially if one has poor discipline, risk or money management. The common use of buying on margin (using borrowed funds) amplifies gains and losses, such that substantial losses or gains can occur in a very short period of time. In addition, brokers usually allow bigger margins for day traders. Where overnight margins required to hold a stock position are normally 50% of the stock's value, many brokers allow pattern day trader accounts to use levels as low as 25% for intraday purchases. This means a day trader with the legal minimum $25,000 in his account can buy $100,000 worth of stock during the day, as long as half of those positions are exited before the market close. Because of the high risk of margin use, and of other day trading practices, a day trader will often have to exit a losing position very quickly, in order to prevent a greater, unacceptable loss, or even a disastrous loss, much larger than his original investment, or even larger than his total assets. Even when a position has made a profit, the trader has to offset the transaction costs and the interest on the margin. It is commonly stated that 80-90% of day traders lose money. An analysis of the Taiwanese stock market suggests that "less than 20% of day traders earn profits net of transaction costs". History
One of the first steps to make day trading of shares potentially profitable was the change in the commission scheme. In 1975, the Securities and Exchange Commission made fixed commissions illegal, giving rise to discount brokers offering much reduced commission rates. Financial settlement periods used to be much longer: Before the early 1990s at the London Stock Exchange, for example, stock could be paid for up to 10 working days after it was bought, allowing traders to buy (or sell) shares at the beginning of a settlement period only to sell (or buy) them before the end of the period hoping for a rise (or fall) in price. This activity was identical to modern day trading, but for the longer duration of the settlement period. Nowadays, to reduce market risk, the settlement period is typically less than a working day. Reducing the settlement period reduces the likelihood of default, but was impossible before the advent of electronic ownership transfer. Electronic Communication Networks The systems by which stocks are traded have also evolved, the second half of the twentieth century having seen the advent of Electronic Communication Networks (ECNs). These are essentially large proprietary computer networks on which brokers could list a certain amount of securities to sell at a certain price (the asking price or "ask") or offer to buy a certain amount of securities at a certain price (the "bid"). The first of these was Instinet. Instinet or "inet" (ECNs and exchanges are usually known to traders by a three- or four-letter designators, which identify the ECN or exchange on Level II stock screens) was founded in 1969 as a way for major institutions to bypass the increasingly cumbersome and expensive NYSE, also allowing them to trade during hours when the exchanges were closed. Early ECNs such as Instinet were very unfriendly to small investors, because they tended to give large institutions better prices than were available to the public. This resulted in a fragmented and sometimes illiquid market. The next important step in facilitating day trading was the founding in 1971 of NASDAQ -- a virtual stock exchange on which orders were transmitted electronically. Moving from paper share certificates and written share registers to "dematerialized" shares, computerized trading and registration required not only extensive changes to legislation but also the development of the necessary technology: online and real time systems rather than batch; electronic communications rather than the postal service, telex or the physical shipment of computer tapes, and the development of secure cryptographic algorithms. These developments heralded the appearance of "market makers": the NASDAQ equivalent of a NYSE specialist. A market maker has an inventory of stocks to buy and sell, and simultaneously offers to buy and sell the same stock. Obviously, it will offer to sell stock at a higher price than the price at which it offers to buy. This difference is known as the "spread". It is of no importance to the market-maker whether the price of a stock goes up or down, as it has enough stock and capital to constantly buy for less than it sells. Today there are about 500 firms who participate as market-makers on ECNs, each generally making a market in four to forty different stocks. Without any legal obligations, market-makers were free to offer smaller spreads on ECNs than on the NASDAQ. A small investor might have to pay a $0.25 spread (e.g. he might have to pay $10.50 to buy a share of stock but could only get $10.25 for selling it), while an institution would only pay a $0.05 spread (buying at $10.40 and selling at $10.35). Technology bubble (1997–2000) In 1997, the SEC adopted "Order Handling Rules" which required market-makers to publish their best bid and ask on the NASDAQ. Another reform made during this period was the "Small Order Execution System", or "SOES", which required market makers to buy or sell, immediately, small orders (up to 1000 shares) at the MM's listed bid or ask. A defect in the system gave rise to arbitrage by a small group of traders known as the "SOES bandits", who made fortunes buying and selling small orders to market makers. The existing ECNs began to offer their services to small investors. New brokerage firms which specialized in serving online traders who wanted to trade on the ECNs emerged. New ECNs also arose, most importantly Archipelago (arca) and Island (isld). Archipelago eventually became a stock exchange and in 2005 was purchased by the NYSE (At this time, the NYSE has proposed merging Archipelago with itself, although some resistance has arisen from NYSE members). Commissions plummeted: in an extreme example (1000 shares of Google), in 2005 an online trader might buy $300,000 of stock at a commission of about $10, as opposed to the $3,000 commission he would have paid in 1974. Moreover, the trader would be able to buy the stock almost instantly and would get it at a cheaper price. ECNs are in constant flux. New ones are formed, while existing ones are bought or merge. As of the end of 2006, the most important ECNs to the individual trader are Instinet (which bought Island in 2005), Archipelago (although technically it is now an exchange rather than an ECN), and The Brass Utility ("brut"), as well as the SuperDot electronic system now used by the NYSE. The evolution of average NASDAQ share prices between 1994 and 2004
The ability for individuals to day trade coincided with the extreme bull market in technical issues from 1997 to early 2000, known as the Dot-com bubble. From 1997 to 2000, the NASDAQ rose from 1200 to 5000. Many naive investors with little market experience made huge profits buying these stocks in the morning and selling them in the afternoon, at 400% margin rates. Adding to the day-trading frenzy were the enormous profits made by the "SOES bandits". (Unlike the new day traders, these individuals were highly-experienced professional traders able to exploit the arbitrage opportunity created by SOES.) In March, 2000, this bubble burst, and a large number of less-experienced day traders began to lose money as fast, or faster, than they had made during the buying frenzy. The NASDAQ crashed from 5000 back to 1200; many of the less-experienced traders went broke. Techniques There are several basic strategies by which day traders attempt to make a profit: Trend following, playing news events, range trading, and scalping. In addition to (or instead of) these, some day traders also use Contrarian (reverse) strategies (more commonly seen in algorithmic trading) to trade specifically against irrational behavior from day traders using these approaches. Some of these approaches require shorting stocks instead of buying them normally: the trader borrows stock from his broker and sells the borrowed stock, hoping that the price will fall and he will be able to purchase the shares at a lower price. There are several technical problems with short sales: the broker may not have shares to lend in a specific issue, some short sales can only be made if the stock price or bid has just risen (known as an "uptick"), and the broker can call for return of its shares at any time. Some of these restrictions (in particular the uptick rule) don't apply to trades of stocks that are actually shares of an exchange-traded fund (ETF). Trend following Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been rising steadily will continue to rise, and vice versa. The trend follower buys an instrument which has been rising, or short-sells a falling one, in the expectation that the trend will continue. Playing news Playing news is primarily the realm of the day trader. The basic strategy is to buy a stock which has just announced good news, or short sell on bad news. Such events provide enormous volatility in a stock and therefore the greatest chance for quick profits (or losses). Determining whether news is "good" or "bad" must be determined by the price action of the stock, because the market reaction may not match tone of the news itself. The most common cause for this is when rumors or estimates of the event (like those issued by market and industry analysts) were already circulated before the official release, and prices have already moved in anticipation. The news is said to be already "priced-in" to the stock price. Range trading A range trader watches a stock that has been rising off a support price and falling off a resistance price. That is, every time the stock hits a high, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells (and possibly short sells) at the high. A related approach to range trading is looking for moves outside of an established range, called a breakout (price moves up) or a breakdown (price moves down), and assume that once the range has been broken prices will continue in that direction for some time. Scalping Scalping originally referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread are exploited. It normally involves establishing and liquidating a position quickly, usually within minutes or even seconds. Scalping highly liquid instruments for off the floor daytraders involves taking quick profits while minimizing risk (lose exposure). It applies technical analysis concepts such as over/under bought, support & resistance zones as well as trendline, trading channel to enter the market at key points and take quick profits from small moves. The basic idea of scalping is to exploit the inefficiency of the market when volatility increases and the trading range expands. Trading equipment Some day trading strategies (including scalping and arbitrage) require relatively sophisticated trading systems and software. Many day traders use multiple monitors or even multiple computers to execute their orders. A fast Internet connection, such as broadband, is essential for day trading. Brokerage Day traders do not use retail brokers, slow to execute trades, and with higher commissions than direct access brokers, who allow the trader to send their orders directly to the ECNs instead of indirectly through brokers. Direct access trading offers substantial improvements in transaction speed and will usually result in better trade execution prices (reducing the costs of trading). Commission Commissions for direct-access brokers are calculated based on volume. The more one trades, the cheaper the commission is. Where a retail broker might charge $10 or more per trade regardless of size, a typical direct-access broker can charge as cheap as $0.004 per share traded, or $0.25 per futures contract. A scalper can cover that cost with even a minimal gain. As for the calculation method, some use pro-rata to calculate commissions and charges, where each tier of volumes charge different commissions. Other brokers use a flat-rate, where all commissions charges are based on which volume threshold one reaches. Market data Real-time market data is necessary for day traders, rather than using the delayed (by anything from 10 to 60 minutes, per exchange rules) market data that is available for free. A real-time data feed requires paying fees to the respective stock exchanges, usually combined with the broker's charges; these fees are usually very low compared to the other costs of trading. The fees may be waived for promotional purposes or for customers meeting a minimum monthly volume of trades. Even a moderately active day trader can expect to meet these requirements, making the basic data feed essentially "free". In addition to the raw market data, some traders purchase more advanced data feeds that include historical data and features such as scanning large numbers of stocks in the live market for unusual activity. Complicated analysis and charting software are other popular additions. These types of systems can cost from tens to hundreds of dollars per month to access. Regulations and restrictions Day trading is considered a risky trading style, and regulations require brokerage firms to ask whether the clients understand the risks of day trading and whether they have prior trading experience before entering the market. In addition, NASD and SEC further restrict the entry by means of "pattern day trader" amendments. Pattern day trader is a term defined by the Securities and Exchange Commission to describe any trader who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. The main rule being that in order to engage in pattern day trading the trader must maintain an equity balance of at least $25,000 in a margin account.
Stock Market
The term 'the stock market' is a concept for the mechanism that enables the trading of company stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal, over-the-counter market known as the bond market. Commodities are traded in commodities markets, and derivatives are traded in a variety of markets (but, like bonds, mostly 'over-the-counter'). The size of the worldwide 'bond market' is estimated at $45 trillion. The size of the 'stock market' is estimated as about half that. The world derivatives market has been estimated at about $300 trillion. The major U.S. Banks alone are said to account for about $100 trillion. It must be noted though that the derivatives market, because it is stated in terms of notional outstanding amounts, cannot be directly compared to a stock or fixed income market, which refers to actual value. The stocks are listed and traded on stock exchanges which are entities (a corporation or mutual organization) specialized in the business of bringing buyers and sellers of stocks and securities together. The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. European examples of stock exchanges include the Paris Bourse (now part of Euronext), the London Stock Exchange and the Deutsche Börse. The BSE & NSE are Stock Markets that have arisen from India. These are also working on a very large scale. Trading Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals. Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery. The New York Stock Exchange is a physical exchange, where much of the trading is done face-to-face on a trading floor. This is also referred to as a "listed" exchange (because only stocks listed with the exchange may be traded). Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades. At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method known as "open outcry": the current bid price is the highest amount any buyer is willing to pay and the current ask price is the lowest price at which someone is willing to sell; if there is a spread, no trade takes place. For a trade to take place, there must be a matching bid and ask price. (If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time.) Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm, who then notifies the investor who placed the order. Although there is a significant amount of direct human contact in this process, computers do play a huge role in the process, especially for so-called "program trading". The Nasdaq is a virtual (listed) exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer provides a bidding price. However, buyers and sellers are electronically matched. One or more Nasdaq market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock. The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Before, it consisted of an open outcry exchange. Stockbrokers met in the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated. From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and Nasdaq and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant. Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions. Market participants Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only after the large institutions had managed to break the brokers' solid front on fees (they then went to 'negotiated' fees, but only for large institutions). However, corporate governance (at least in the West) has been greatly affected by the rise of institutional 'owners.' History Braudel suggests that in Cairo in the 11th century Islamic and Jewish merchants had already set up every form of trade association and had knowledge of every method of credit and payment, disproving the belief that these were invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. In late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurse, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam. In the middle of the 13th century Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them" (Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7, April 5, 2001). There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, China (Hong Kong), India, UK, Germany, France and Japan. Function and purpose
History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'être of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 per cent of households' financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another. The stock market, individual investors, and financial risk Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other 'risky' investments (such as 'investment' property, i.e., real estate and collectables). "...With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtalking each other to get investors' attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their children's education and their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly." This is a quote from the preface to a published biography about the well-known and long term value oriented stock investor Warren Buffett. Buffett began his career with only 100 U.S. dollars and has over the years built himself a multibillion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st. From experience we know that investors may temporarily pull financial prices away from their long term trend level. Over-reactions may occur— so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. New theoretical and empirical arguments have been put forward against the notion that financial markets are efficient. According to the efficient market hypothesis (EMH), only changes in fundamental factors, such as profits or dividends, ought to affect share prices. (But this largely theoretic academic viewpoint also predicts that little or no trading should take place— contrary to fact— since prices are already at or near equilibrium, having priced in all public knowledge.) But the efficient-market hypothesis is sorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percent — the largest-ever one-day fall in the United States.
Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact. Other research has shown that psychological factors may result in exaggerated stock price movements. Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up). A period of good returns also boosts the investor's self-confidence, reducing his (psychological) risk threshold. Another phenomenon— also from psychology— that works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group. In one paper the authors draw an analogy with gambling. In normal times the market behaves like a game of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker (herding behavior takes over). The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. The stock market, as any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. In the period running up to the recent Nasdaq crash, less than 1 per cent of the analyst's recommendations had been to sell (and even during the 2000 - 2002 crash, the average did not rise above 5%). The media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market. (And later amplified the gloom which descended during the 2000 - 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.) Irrational behavior Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors and mass panic. Furthermore, the stock market comprises a large amount of speculative analysts, or pencil pushers, who have no substantial money or financial interest in the market, but make market predictions and suggestions regardless. Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market difficult to predict. Stock market index The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices. Such indices are usually market capitalization (the total market value of floating capital of the company) weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment. Derivative instruments Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commodities futures exchanges), or traded over-the-counter. As all of these products are only derived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market. Leveraged Strategies Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale. Short selling In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime or losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets. Margin buying In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales.) Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim). New issuance Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a 29.8% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased 221% with 233 offerings that raised $45 billion, and IPOs in Europe, Middle East and Africa (EMEA) increased by 333%, from $ 9 billion to $39 billion. Investment strategies One of the many things people always want to know about the stock market is, "How do I make money investing?" There are many different approaches; two basic methods are classified as either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns, utilizes strict money management and is also rooted in risk control and diversification. Additionally, many choose to invest via the index method. In this method, one holds a weighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (such as the S&P 500 or Wilshire 5000). The principal aim of this strategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market (which, in the U.S., has averaged nearly 10%/year, compounded annually, since World War II). Finally, one may trade based on inside information, which is known as insider trading. However, this is illegal in most jurisdictions (i.e., in most developed world stock markets).
The New York Stock Exchange
The NYSE is operated by NYSE Group, which was formed by merger with the fully electronic stock exchange Archipelago Holdings. The New York Stock Exchange trading floor is located at 11 Wall Street, and is composed of five rooms used for the facilitation of trading. The main building is listed on the National Register of Historic Places and is located at 18 Broad Street, between the corners of Wall Street and Exchange Place. NYSE Group is acquiring Euronext, and many of its operations (particularly IT and the trading platform) will be combined with that of the New York Stock Exchange and NYSE Arca. The NYSE trades in a continuous auction format. There is one specific location on the trading floor where each listed stock trades. Exchange members interested in buying and selling a particular stock on behalf of investors gather around the appropriate post where a specialist broker, who is employed by a NYSE member firm (that is, he/she is not an employee of the New York Stock Exchange), acts as an auctioneer in an open outcry auction market environment to bring buyers and sellers together and to manage the actual auction. They do on occasion (approximately 10% of the time) facilitate the trades by committing their own capital and as a matter of course disseminate information to the crowd that helps to bring buyers and sellers together. Most of the time natural buyers and sellers meet in a market that provides efficient price discovery in an auction environment that is designed to produce the fairest price for both parties. The human interaction and expert judgment as to order execution differentiates the NYSE from fully electronic markets. However, in excess of 50% of all order flow is now delivered to the floor electronically. Recent proposals have been made to adopt a Hybrid market structure combining elements of open outcry and electronic markets. The frenzied commotion of men and women in colored smocks has been captured in several movies, including Wall Street. In the mid-1960s, the NYSE Composite Index (NYSE: NYA) was created, with a base value of 50 points equal to the 1965 yearly close, to reflect the value of all stocks trading at the exchange instead of just the 30 stocks included in the Dow Jones Industrial Average. To raise the profile of the composite index, in 2003 the NYSE set its new base value of 5,000 points equal to the 2002 yearly close. (Previously, the index had stood just below 500 points, with lifetime highs and lows of 670 points and 33 points, respectively.) The lifetime high of the NYSE Composite in trading stands at 9,188.17 points, reached on December 28, 2006, while its lifetime low (as currently calculated) stands at 347.77 points, reached in October 1974. Since September 30, 1985 the NYSE trading hours have been 9:30 - 16:00 EST. The right to directly trade shares on the exchange is conferred upon owners of the 1366 "seats". The term comes from the fact that up until the 1870s NYSE members sat in chairs to trade; this system was eliminated long ago. In 1868, the number of seats was fixed at 533, and this number was increased several times over the years. In 1953, the exchange stopped at 1366 seats. These seats are a sought-after commodity as they confer the ability to directly trade stock on the NYSE. Seat prices have varied widely over the years, generally falling during recessions and rising during economic expansions. The most expensive seat, adjusted for inflation, was sold in 1929 for $625,000, which is over six million in today's dollars. In recent times, seats have sold for as high as $4 million in the late 1990s and $1 million in 2001. In 2005, seat prices shot up to $3.25 million as the exchange was set to merge with Archipelago and become a for-profit, publicly traded company. Seat owners received $500,000 cash per seat and 77,000 shares of the newly formed corporation. The NYSE now sells one-year licenses to trade directly on the exchange. History The origin of the NYSE can be traced to May 17, 1792, when the Buttonwood Agreement was signed by twenty-four stockbrokers outside of 68 Wall Street in New York under a buttonwood tree. On March 8, 1817, the organization drafted a constitution and renamed itself the "New York Stock & Exchange Board". This name was shortened to its current form in 1863. Anthony Stockholm was elected the Exchange's first president. The first central location of the NYSE was a room rented for $200 a month in 1817 located at 40 Wall Street. But the volume of stocks traded had increased sixfold in the years between 1896 and 1901 and a larger space was required to conduct business in the expanding marketplace. Eight New York City architects were invited to participate in a design competition for a new building and the Exchange selected the neoclassic design from architect George B. Post. Demolition of the existing building at 10 Broad Street and the adjacent lots started on 10 May 1901. The New York Stock Exchange building opened at 18 Broad Street on April 22, 1903 at a cost of $4 million. The trading floor was one of the largest volumes of space in the city at the time at 109 x 140 feet wide (33 x 42.5 meters) with a skylight set into a 72 foot high ceiling (22 m.) The main facade of the building features marble sculpture by John Quincy Adams Ward in the pediment, above six tall Corinthian capitals, called "Integrity Protecting the Works of Man". The building was listed as a National Historic Landmark and added to the National Register of Historic Places on June 2, 1978. In 1922, a building designed by Trowbridge & Livingston was added at 11 Broad Street for offices, and a new trading floor called "the garage". Additional trading floor space was added in 1969 and 1988 (the "blue room") with the latest technology for information display and communication. Another trading floor was opened at 30 Broad Street in 2000. With the arrival of the Hybrid Market, a greater proportion of trading was executed electronically and the NYSE decided to close the 30 Broad Street trading room in early 2006. The Exchange was closed shortly after the beginning of World War I (July 1914), but it was re-opened on November 28 of that year in order to help the war effort by trading bonds. On September 16, 1920, a bomb exploded on Wall Street outside the NYSE building, killing 33 people and injuring more than 400. The perpetrators were never found. The NYSE building and some buildings nearby, such as the JP Morgan building, still have marks on their facades caused by the bombing. The Black Thursday crash of the Exchange on October 24, 1929, and the sell-off panic which started on Black Tuesday, October 29, are often blamed for precipitating the Great Depression. In an effort to try to restore investor confidence, the Exchange unveiled a fifteen-point program aimed to upgrade protection for the investing public on October 31, 1938. On October 1, 1934, the exchange was registered as a national securities exchange with the U.S. Securities and Exchange Commission, with a president and a thirty-three member board. On February 18, 1971 the not-for-profit corporation was formed, and the number of board members was reduced to twenty-five. On August 24, 1967, Abbie Hoffman led a group opposed to capitalism (and other things, including the Vietnam War) in the gallery of the New York Stock Exchange. The protestors threw fistfuls of (mostly fake) dollar bills down to the traders below, who began to scramble frantically to grab the money, as fast as they could. Hoffman claimed to be pointing out that, metaphorically, that's what NYSE traders "were already doing". The NYSE then installed barriers in the gallery, to prevent this kind of protest from interfering with trading again. Following a 554.26 point drop in the Dow Jones Industrial Average (DJIA) on October 27, 1997, officials at the Exchange for the first time invoked the "circuit breaker" rule to stop trading. This was a very controversial move and prompted a quick change in the rule; trading now halts for an hour, two hours, or the rest of the day when the DJIA drops 10, 20, or 30 percent, respectively. In the afternoon, the 10 and 20% drops will halt trading for a shorter period of time, but a 30% drop will always close the exchange for the day. The rationale behind the trading halt was to give investors a chance to cool off and reevaluate their positions. The NYSE was closed from September 11 until September 17, 2001 as a result of the September 11, 2001 attacks. On September 17, 2003, NYSE chairman and chief executive Richard Grasso stepped down as a result of controversy concerning the size of his deferred compensation package. He was replaced as CEO by John Thain, the former President of Goldman Sachs Group Inc. On April 21, 2005, the NYSE announced its plans to acquire Archipelago, in a deal that is intended to bring the NYSE public. On December 6, 2005, the NYSE's governing board voted to acquire rival Archipelago and become a for-profit, public company. It began trading under the name NYSE Group on March 8, 2006. The Dow Jones Industrial Average, which started on October 1, 1928, hit a record high on January 03 2006 of 12.580,35. Marsh Carter is the Chairman of the New York Stock Exchange, succeeding John S. Reed. John Thain is the CEO of the NYSE. Gerald Putnam and Catherine Kinney are the co-Presidents of the NYSE. New York Stock Exchange Milestones
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A stockbroker sells or buys stock on behalf of a customer. The stockbroker
works as an agent matching up stock buyers and sellers. A transaction on a
stock exchange must be made between two members of the exchange — a typical
person may not walk into the New York Stock Exchange (for example), and ask to
trade stock. Such an exchange must be done through a broker.
Some people prefer to use and pay for the services of a broker because they
feel more comfortable making decisions about their finances with the
interactive guidance of a licensed professional.
Back
office: The back office is where the clearance processing of
the trades is done. Transfer of securities and money and the tracking of
"failure to deliver" is handled. Securities lending for a
brokerage firm, wherein shares of a security that is being sold short
are located to ensure they can be delivered, is usually included in the
back office as well.
Day trading refers to the practice of buying and selling financial
instruments within the same trading day such that all positions will
usually (not necessarily always) be closed before the market close of
the trading day. Traders that participate in day trading are called day
traders.
Originally, the most important U.S. stocks were traded on the New
York Stock Exchange. A trader would contact a stockbroker, who would
relay the order to a specialist on the floor of the NYSE. These
specialists would each make markets in only a handful of stocks. The
specialist would match the purchaser with another broker's seller; write
up physical tickets that, once processed, would effectively transfer the
stock; and relay the information back to both brokers. Brokerage
commissions were fixed at 1% of the amount of the trade, i.e. to
purchase $10,000 worth of stock cost the buyer $100 in commissions.
A stock market is a market for the trading of company stock, and
derivatives of same; both of these are securities listed on a stock
exchange as well as those only traded privately.
This event demonstrated that share prices can fall dramatically
even though, to this day, it is impossible to fix a definite cause: a
thorough search failed to detect any specific or unexpected development
that might account for the crash. It also seems to be the case more
generally that many price movements are not occasioned by new information;
a study of the fifty largest one-day share price movements in the United
States in the post-war period confirms this. Moreover, while the EMH
predicts that all price movement (in the absence of change in fundamental
information) is random (i.e., non-trending), many studies have shown a
marked tendency for the stock market to trend over time periods of weeks
or longer.