Classification of key financial markets.

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  • Equities
    A distinction should be made between public and private equity. Shares in a publicly traded company are generally bought and sold between agents on the open market. By contrast, private equity is not freely tradable; the ownership of a company is tightly held, and the current owners do not allow public purchases or sales of equity to change the situation.
    Although the general growth of public equity globally has encouraged the development of stock markets in some nations where historically companies were privately owned, there has also been a growth in private ownership in nations where historically companies were public. A number of private equity funds purchase public companies and take them ‘private’ once they have a controlling interest. They hope to manage the business more successfully than currently, and may then look to crystallize their gains by ‘floating’ the company once more by selling interests in the public market at a new, higher price.
  • Bonds
    A bond is a debt security issued for a period of more than one year with the purpose of raising capital for the issuer. When a investor buys a bond, the investor (bondholder) becomes a creditor of the issuer and has priority over a shareholder in the event of liquidation. However, the bondholder does not acquire any form of ownership rights.
  • Short-Term Debt Securities
    The different types of short-term debt securities are treasury bills, certificates of deposit(CDs), commercial paper(CP) and bankers acceptances(BAs).
  • Interbank Deposits and Syndicated loans
    Although debt can be raised through securities such as bonds and bills, the traditional source of money for many agents has been through their banks. In the interbank markets, agents can borrow and lend money for short periods of time (as short as overnight) at a single pre-agreed interest rate.  Syndicate of banks can borrow large amount of money for as long as 10 years through a term loan and split among many different members.
  • Foreign Exchange
    The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as “forex” and occasionally as “FX.”
  • Commodities
    There are extensive markets that facilitate trading in primary commodities. These may be markets for investment commodities, such as precious metals (there has always been a substantial market in gold), or markets devoted to consumption products such as agricultural goods, oil products, or base metals. Sometimes the distinction is unclear; silver prices are related not merely to demand for silver as a precious metal, but also to the demand for silver as an industrial product.
  • Securitized Assets
    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.
    Mortgage-backed securities are a perfect example of securitization. By combining mortgages into one large pool, the issuer can divide the large pool into smaller pieces based on each individual mortgage’s inherent risk of default and then sell those smaller pieces to investors.
  • Derivatives
    A derivative instrument derives its value from the market levels of observed simple assets or transactions. Derivatives can be broadly categorized into forwards, futures, options and swaps.

Classification of financial market participants.

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  • Raising Money
    • Private sector institutions
      • Financial Institutions
        Banks, trust companies, insurance companies and investment dealers will look to raise funds at a low cost in order to lend these funds on at a profit.
      • Non-Financial Corporations
        Other than financial institutions, non-financial corporations looking to expand either through acquisition or investment, will require funds for these purposes.
    • Governments
      Most governments will generate a deficit between revenue raised through general taxation, and expenditure on public services. There will also be a requirement for short-term cash and working capital. Additionally, a government may look to accumulate foreign currency reserves allowing intervention in the foreign-exchange market.
    • Supranational Entities
      There are a number of supranational entities such as the World Bank or the European Investment Bank (EIB), that lend money to projects or entities and require a method of raising funds.
  • Using Money
    • Fund Managers
      • Investment trusts, mutual funds/unit trusts
      • Pension funds
      • Hedge funds
    • Corporations
      Not all corporations are looking to borrow money at all times. Sometimes, a corporation will have a cash surplus which it is looking to invest in short-term assets or equity markets.
    • Individuals
      Individual (retail) investors are increasingly choosing to make investments through mutual funds, ETFs and other pooled/collective investment vehicles.

Different types of order.

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  • Market orders
    Buy or sell a stock immediately at the best available current price.
  • Limit orders
    Buy or sell a stock at a specified or better price, which means a buy limit order will be executed at or lower than specified price and a sell limit order will be executed at or higher than specified price.  If these conditions are not satisfied, your order will not be executed.
  • Stop orders
    Stop order can also be called stop-loss order. The order becomes market order once it reaches the stop price.
    A buy stop order may be used to buy back shorted trades. The stop price for buy stop order must be at or above market price (for example, scottrade requires above market price by 0.1). For example, if you short IBM on $190.00, now market price is $194.00, you may place a buy stop order at $195.00, so once the market price reaches $195.00, your order will become market order and be executed.
    A sell stop order may be used to sell longed trades. The stop price for sell stop order must be at or below market price (for example, scottrade requires above market price by 0.1). For example, if you long IBM on $190.00 now market price is $185.00, you may place a sell stop order at $184.00, so once the market price reaches $184.00, your order will become market order and be executed.
    If the stop price is never reached, your order will not be executed. 
  • Stop-limit orders
    Buy or sell at a specified price or better after a specified stop price has been reached. The difference from stop order is that stop-limit order will become a limit order after stop price is reached instead of becoming a market order. It is useful if the stock price moves very fast. For example, market price of IBM is $195.00. You have been placed a sell stop order with stop price at $194.00 and a sell stop-limit order with stop price at $194.00 and limit price at $193.99. If the market price of IBM at 10:00 am drops from $195.00 to $194.00. Both sell stop order and sell stop-limit order are triggered. Imaging next second 10:01 am, the market price of IBM becomes $193.00. Now the sell stop order will be executed at $193.00 but the sell stop-limit order will not be executed because $193.00 is below your limit price $193.99. If the market price of IBM bounced back to $194.00 later, then your sell stop-limit order will be executed at $193.99 which is your limit price.
  • Trailing stop orders
    Trailing stop orders are derived from stop orders except you specify a trailing amount(percentage or points($)) instead of stop price, which can be used to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain. The stop price is determined by
    subtracting(sell) or adding(buy) trailing amount based on market price. Stop price will only be adjusted if the gap between stop price and market price is larger than trailing amount.
    For example, market price of IBM is $200.00 and you place a sell trailing stop order at 10% or $10, then your stop price will be $180.00 or $190.00. If the market price raise to $210.00, your stop price will be adjusted to $189.00 or $210.00. If the market price falls, the stop price won’t be adjusted.
    Let’s see another example with buy trailing stop order. Still assuming market price of IBM is $200.00 and you place a buy trailing stop order at 10% or $10, then your stop price will be $220.00 or $210.00. If the market price falls to $190.00, your stop price will be adjusted to $209.00 or $200.00. If the market price raises, the stop price won’t be adjusted.
  • Day orders
    Terminates automatically at the end of the trading day if it has not been filled by that time.
  • Good-till-cancelled orders
    Buy or sell at a limit price remains in force until it is either executed by broker or cancelled by investor.
  • Fill-or-kill orders
    The order be cancelled automatically if it is not executed immediately.
  • All-or-none orders
    Fill the entire amount of order or none of it at all. For example, you place a all-or-none order to buy 1 million shares of IBM. Your order will be executed only if there is 1 million shares for selling.

Differences between primary market and secondary market.

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  • Primary market
    The issuer sells shares in the company to the public. The primary market is usually synonymous with initial public offering (IPO).
  • Secondary market
    Investors deal directly with each other, there is no need for the involvement of the issuing company. For example, the market of exchange traded listed stocks.

Classification of stocks according to investment objective/performance.

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  • Growth stocks
    Growth stocks are those whose earnings are expected to grow an above average rate compared to other stocks in the market. Growth companies tend to be aggressive and are typically characterized by their lack of dividend payments because earning are invariably reinvested into infrastructure and R&D to maintain rapid growth. The higher the P/E and P/B ratios compared to other stocks, the more growth-oriented is a stock. Other attributes of growth stocks are ROE, PEG ratio, pretax profit margins and etc..
  • Value stocks
    Value stocks are those that are perceived to be undervalued by the stock market, relative to their fair or intrinsic market value. They may be companies whose share prices have dropped significantly following an event or announcement, but which could well bounce back in the future. Value stocks tend to have low P/E and P/B ratios relative to market benchmarks and PEG ratios of less than one.
  • Income stocks
    Income stocks are not generally renowned for their capital appreciation, but more for their history of regular – and often increasing – dividend payments. An important indicator for income stocks is the dividend yield.
  • Cyclical stocks
    Cyclical stocks are those whose performance fluctuates with the business cycle. Cyclical stocks are usually those for which demand can be flexible, such as automobile, travel and construction and related-industry stocks.
  • Non-cyclical stocks
    Non-cyclical stocks(defensive stocks) are those that are henerally resistant to changes in the economic environment. Such stocks will repeatedly outperform the market when economic growth slows. Classic examples are food, beverage, utilities, tobacco and drug companies.
  • Seasonal stocks
    Seasonal stocks are those whose performance tends to fluctuate depending on the time of the year. Retail companies are obvious example.
  • Blue-chip stocks
    Blue-chip stocks are large, secure and prestigious companies of the highest class in the stock market.
  • Penny stocks
    Penny stocks are low-priced, highly speculative stocks of very small companies. They are generally traded in the OTC market or second-tier exchange markets.

Differences between common stock and preferred stock.

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Common Stock Preferred Stock
Dividends
(if dividends is declared)
√ (fixed)
Voting Rights ×
From investor’s view care about growth and
profitability of the company
like bonds, care about
interest
Type of Return 1. cappital appreciation
2. dividend payments
fixed dividends
(like interest)
Order of Claims
(after bankrupcy)
fourth(last) second

Different kinds of preferred stock.

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  • Cumulative
    Dividends accrue even though they are not actually paid. If a company is somewhat short of cash, the payment of dividends on preferred stock may be suspended. When the situation improves and the payment of dividends is resumed, cumulative preferred stockholders are paid their accrued dividends before any payment is made to common stockholders and before shares are redeemed.
  • Redeemable (Callable)
    Most preferred stock issues are also redeemable, which means that the issuing company has the right to purchase the shares from the stockholders.
  • Convertible
    Shareholders have the option to convert their shares into common stock using a predetermined formula – mandatory convertible stock is automatically converted into common stock at pre-specified dates. convertible preferred stock is also usually callable. This enables the issuer to call the stock and force preferred stockholders to choose between accepting either par value or shares of common stock (forced conversion).
  • Participating
    Entitled to partake in a further share of the profits of the issuing company through the payment of a participating dividend (after common stockholders have received their dividend). 

Key dates of dividend.

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“On March 10, 2012, ABC company declares that dividends is payable on May 25, 2012 to shareholders on the register on April 20, 2012. The ex-dividend date is April 18, 2012.”

Above is a news header and it contains all key dates of dividend:

  • March 10, 2012 (declaration date) : This date is when company declares a dividend payment in the future.
  • May 25, 2012 (payable date): This date is when dividend payments are actually made to shareholders.
  • April 20, 2012 (record date): This date is when company decides who receives the dividend payment. All shareholders on record will receive payment on incoming payable date.
  • April 18, 2012 (ex-dividend date): Investors bought before this date will be recorded and whose name will appear on record on record date.

Different kinds of dividends of common stock.

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  • Cash dividends
    Normally expressed as a cash amount per share (USD 0.35 per common share).
  • Stock dividends
    Usually issued in proportion to shares owned. For example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 additional shares. If any fractional shares are left over, a cash dividend is paid. Stock dividends are similar to stock splits – both increase the number of shares outstanding and reduce the value of each share. 
  • Property dividends
    Apart from cash and stock dividends, companies can also pay property dividends with tangible assets owned by the issuing company, usually in the form of products or services that the company produces.
  • Special dividends
    Rare and can occur for a variety of reasons, such as very strong earnings results, company restructuring or liquidation of an investment. They can take the form of cash or stock, but unlike regular dividends, they are unlikely to be repeated in the future. (For example, Telular Corporation decided to pay a one-time special cash dividend of USD 1 per share in Nov. 2010)

Effective C++ item 19: Treat class design as type design.

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In C++, as in other object-oriented programming languages, defining a new class defines a new type. Much of your time as a C++ developer will thus be spent augmenting your type system. While designing your own classes, please ask yourself these questions:

  • How should objects of your new type be created and destroyed?
  • how should object initialization differ from object assignment?
  • What does it mean for objects of your new type to be passed by value?
  • What are the restrictions on legal values for your new type?
  • Does your new type fit into an inheritance graph?
  • What kind of type conversions are allowed for your new type?
  • What operators and functions make sense for the new type?
  • What standard functions should be disallowed?
  • Who should have access to the members of your new type?
  • What is the “undeclared interface” of your new type?
  • How general is your new type?
  • Is a new type really what you need?

Reference:
“Effective C++” Third Edition by Scott Meyers.