session2 - Markets WonseokOh Class#2 Jan.7th,2010 Agenda...

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Impact of IT in Financial  Markets Wonseok Oh Class #2 Jan. 7 th , 2010
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Agenda  Understanding Financial Market Systems Markets, Trading, and the Role of I.T The Impact of IT on Financial Markets Algorithmic Trading
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Instruments and Markets Common stock or equity is an ownership share in a firm's profits and net worth. Bonds or fixed income obligations represent loans or contractual claims to a specified stream of repayments. The typical bond pays interest up to the maturity date, when the face value or principal is returned. Markets also exist for physical commodities like gold, oil, and agricultural products, and for foreign currencies . Markets differ depending on the timing of the asset's transfer of ownership. In cash or spot markets , ownership of the traded instrument is transferred immediately, and settlement occurs on T+3 in U.S. Options contracts confer the right but not the obligation to buy or sell an asset or financial instrument at a specified strike price during the contract s lifetime, which ends on the option's expiration date. In forward or futures markets , a price and a delivery date sometime in the future are specified. On the delivery or expiration date, for all open futures positions, ownership transfers and the pre-agreed price is paid by the buyer and received by the seller. Liquidity : Market liquidity is a business, economics or investment term that refers to an asset's ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset.
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Value Chain of investment decisions and technologies used Portfolio Management: Investment Horizon, Risk/ Return trade-off Desired Asset Holdings: Diversify across stocks, bonds, sectors, borders, etc. Trading Orders (Buy/Sell): Communicate with market or broker Market Mechanism: Order matching, trade execution, and settlement Computer databases of historic prices and index values to determine volatility and risk Analysis and selection of attractive combina- tions of asset classes, such bonds, stocks, and real estate. Monitor exposure Order routing systems transmit investor orders to the appropriate marketplace Order execution and deal capture systems. Machine readable details passed to clear- inghouse and portfolio accounting systems Computerized Functions in Financial Markets: Order management for consolidating desired trades and linking to market systems Order routing directs orders entered by a trader to the appropriate market. Price determination is often supported by systems that aggregate the orders submitted to a market and that help to determine execution prices.
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This note was uploaded on 03/23/2010 for the course INSY INSY434 taught by Professor Oh during the Winter '10 term at McGill.

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session2 - Markets WonseokOh Class#2 Jan.7th,2010 Agenda...

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