Monday, August 27, 2012
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Ticker tape reading
See the main article: Ticker tape
In recent decades with the popularity of PCs and later the internet, and through them, the electronic trading, the chart analysis became the main and most popular branch of technical analysis. But it is not the only one branch of this type of analysis.
One very popular form of technical analysis until the mid-1960s was the "tape reading". It was consisted in reading the market informations as price, volume, orders size, speed, conditions, bids for buying and selling, etc; printed in a paper strip which ran through a machine called a stock ticker. It was sent to the brokerage houses and to the homes and offices of most active speculators. Such a system fell into disuse with the advent in the late 60's, of the eletronic panels.Ticker tape was the earliest digital electronic communications medium, transmitting stock price information over telegraph lines, in use between around 1870 through 1970. It consisted of a paper strip which ran through a machine called a stock ticker, which printed abbreviated company names as alphabetic symbols followed by numeric stock transaction price and volume information. The term "ticker" came from the sound made by the machine as it printed.
Paper ticker tape started to become obsolete in the 1960s, as television and computers were increasingly used to transmit financial information. The concept of the stock ticker lives on, however, in the scrolling electronic tickers seen on brokerage walls and on financial television networks.
Ticker tape was invented in 1867 by Edward A. Calahan, an employee of the American Telegraph Company.Stock ticker machines are an ancestor of the modern computer printer, being one of the first applications of transmitting text over a wire to a printing device, based on the printing telegraph. This used the technology of the then-recently invented telegraph machines, with the advantage that the output was readable text, instead of the dots and dashes of Morse code. A special typewriter designed for operation over telegraph wires was used at the opposite end of the telegraph wire connection to the ticker machine. Text typed on the typewriter was displayed on the ticker machine at the opposite end of the connection.
The machines printed a series of ticker symbols (usually shortened forms of a company's name), followed by brief information about the price of that company's stock; the thin strip of paper they were printed on was called ticker tape. As with all these terms, the word ticker comes from the distinct tapping (or ticking) noise the machines made while printing. Pulses on the telegraph line made a letter wheel turn step by step until the right letter or symbol was reached and then printed. A typical 32-symbol letter wheel had to turn on average 15 steps until the next letter could be printed resulting in a very slow printing speed of 1 letter per second.[6] In 1883, ticker transmitter keyboards resembled the keyboard of a piano with black keys indicating letters and the white keys indicating numbers and fractions, corresponding to two rotating type wheels in the connected ticker tape printers.[7]
Newer and more efficient tickers became available in the 1930s and 1960s but the physical ticker tape phase was quickly coming to a close being followed by the electronic phase. These newer and better tickers still had an approximate 15-to-20-minute delay. Stock ticker machines became obsolete in the 1960s, replaced by computer networks; none have been manufactured for use for decades. However, working reproductions of at least one model are now being manufactured for museums and collectors.[citation needed] It was not until 1996 that a ticker type electronic device was produced that could operate in true real time.
Simulated ticker displays, named after the original machines, still exist as part of the display of television news channels and on some World Wide Web pages—see news ticker. One of the most famous displays is the simulated ticker located at One Times Square in New York City.
Ticker tapes then and now contain generally the same information. The ticker symbol is a unique set of characters used to identify the company. The shares traded is the volume for the trade being quoted. Price traded refers to the price per share of a particular trade.
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Binary options are high risk financial instruments where a prediction is made regarding the price of an asset at a certain period of the day. The predictions made relate to very small price modifications, which are extremely hard to predict, hence the high risk factor.
In finance, a binary option is a type of option where the payoff is either some fixed amount of some asset or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. Thus, the options are binary in nature because there are only two possible outcomes. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and Fixed Return Options (FROs) (on the American Stock Exchange). Binary options are usually European-style options.
For example, a purchase is made of a binary cash-or-nothing call option on XYZ Corp's stock struck at $100 with a binary payoff of $1000. Then, if at the future maturity date, the stock is trading at or above $100, $1000 is received. If its stock is trading below $100, nothing is received.
In the popular Black-Scholes model, the value of a digital option can be expressed in terms of the cumulative normal distribution function.Non exchange-traded binary options
Binary options contracts have long been available Over-the-counter (OTC), i.e. sold directly by the issuer to the buyer. They were generally considered "exotic" instruments and there was no liquid market for trading these instruments between their issuance and expiration. They were often seen embedded in more complex option contracts.
Since mid-2008 binary options web-sites called binary option trading platforms have been offering a simplified version of exchange-traded binary options. It is estimated that around 90 such platforms (including white label products) have been in operation as of January 2012, offering options on some 125 underlying assets.
[edit]Exchange-traded binary options
In 2007, the Options Clearing Corporation proposed a rule change to allow binary options,[1] and the Securities and Exchange Commission approved listing cash-or-nothing binary options in 2008.[2] In May 2008, the American Stock Exchange (Amex) launched exchange-traded European cash-or-nothing binary options, and the Chicago Board Options Exchange (CBOE) followed in June 2008. The standardization of binary options allows them to be exchange-traded with continuous quotations.
Amex offers binary options on some ETFs and a few highly liquid equities such as Citigroup and Google.[3] Amex calls binary options "Fixed Return Options"; calls are named "Finish High" and puts are named "Finish Low". To reduce the threat of market manipulation of single stocks, Amex FROs use a "settlement index" defined as a volume-weighted average of trades on the expiration day.[4] The American Stock Exchange and Donato A. Montanaro submitted a patent application for exchange-listed binary options using a volume-weighted settlement index in 2005.[5]
CBOE offers binary options on the S&P 500 (SPX) and the CBOE Volatility Index (VIX).[6] The tickers for these are BSZ[7] and BVZ,[8] respectively. CBOE only offers calls, as binary put options are trivial to create synthetically from binary call options. BSZ strikes are at 5-point intervals and BVZ strikes are at 1-point intervals. The actual underlying to BSZ and BVZ are based on the opening prices of index basket members.
Both Amex and CBOE listed options have values between $0 and $1, with a multiplier of 100, and tick size of $0.01, and are cash settled.[6][9]
In 2009 Nadex, the North American Derivatives Exchange, launched and now offers a suite of binary options vehicles.[10] Nadex binary options are available on a range Stock Index Futures, Spot Forex, Commodity Futures, and Economic Events.
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In finance, a stock market index future is a cash-settled futures contract on the value of a particular stock market index.
Contents [hide]
1 Market
2 Uses
3 Pricing
4 See also
5 Notes
[edit]Market
The turnover for the global market in exchange-traded equity index futures is notionally valued, for 2008, by the Bank for International Settlements at USD 130 trillion[1].
[edit]Uses
Stock index futures are used for hedging, trading, and investments.
Hedging using stock index futures could involve hedging against a portfolio of shares or equity index options.
Trading using stock index futures could involve, for instance, volatility trading (The greater the volatility, the greater the likelihood of profit taking – usually taking relatively small but regular profits).
Investing via the use of stock index futures could involve exposure to a market or sector without having to actually purchase shares directly.
Please note the following cases of equity hedging with index futures:
Where your portfolio 'exactly' reflects the index (this is unlikely). Here, your portfolio is perfectly hedged via the index future.
Where your portfolio does not entirely reflect the index (this is more likely to be the case). Here, the degree of correlation between the underlying asset and the hedge is not high. So, your portfolio is unlikely to be 'fully hedged'.
Equity index futures and index options tend to be in liquid markets for close to delivery contracts. They trade for cash delivery, usually based on a multiple of the underlying index on which they are defined (for example £10 per index point).
OTC products are usually for longer maturities, and are usually a form of options product. For example, the right but not the obligation to cash delivery based on the difference between the designated strike price, and the value of the designated index at the expiration date. These are traded in the wholesale market, but are often used as the basis of guaranteed equity products, which offer retail buyers a participation if the equity index rises over time, but which provides guaranteed return of capital if the index falls. Sometimes these products can take the form of exotic options (for example Asian options or Quanto options).
[edit]Pricing
Forward prices of equity indices are calculated by computing the cost of carry of holding a long position in the constituent parts of the index. This will typically be
The risk-free interest rate, since the cost of investing in the equity market is the loss of interest
Minus the estimated dividend yield on the index, since an equity investor receives the sum of the dividends on the component stocks. Since these occur at different times, and are difficult to predict, estimation of the forward price can be difficult, particularly if there are not many stocks in the chosen index.
Indices for futures are the well-established ones, such as S&P 500, FTSE, DAX, CAC40 and other G12 country indices. Indices for OTC products are broadly similar, but offer more flexibility.
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The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets.
The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives. The legal nature of these products is very different as well as the way they are traded, though many market participants are active in both.Futures exchanges, such as Euronext.liffe and the Chicago Mercantile Exchange, trade in standardized derivative contracts. These are options contracts and futures contracts on a whole range of underlying products. The members of the exchange hold positions in these contracts with the exchange, who acts as central counterparty. When one party goes long (buys a futures contract), another goes short (sells). When a new contract is introduced, the total position in the contract is zero. Therefore, the sum of all the long positions must be equal to the sum of all the short positions. In other words, risk is transferred from one party to another. The total notional amount of all the outstanding positions at the end of June 2004 stood at $53 trillion. (source: Bank for International Settlements (BIS): [1]). That figure grew to $81 trillion by the end of March 2008 .Over-the-counter markets
Tailor-made derivatives, not traded on a futures exchange are traded on over-the-counter markets, also known as the OTC market. These consist of investment banks who have traders who make markets in these derivatives, and clients such as hedge funds, commercial banks, government sponsored enterprises, etc. Products that are always traded over-the-counter are swaps, forward rate agreements, forward contracts, credit derivatives, accumulators etc. The total notional amount of all the outstanding positions at the end of June 2004 stood at $220 trillion. (source: BIS: [3]). By the end of 2007 this figure had risen to $596 trillion and in 2009 it stood at $615 trillion. (source: BIS: [4])
[edit]Netting
Global:
US: Figures below are from SECOND QUARTER, 2008 [5]
Total derivatives (notional amount): $182.2 trillion (SECOND QUARTER, 2008)
Interest rate contracts: $145.0 trillion (80%)
Foreign exchange contracts: $18.2 trillion(10%)
2008 Second Quarter, banks reported trading revenues of $1.6 billion
Total number of commercial banks holding derivatives: 975
[6]
According to Bank for International Settlements "$516 trillion at the end of June 2007"
Positions in the OTC derivatives market have increased at a rapid pace since the last triennial survey was undertaken in 2004. Notional amounts outstanding of such instruments totalled $516 trillion at the end of June 2007, 135% higher than the level recorded in the 2004 survey (Graph 4). This corresponds to an annualised compound rate of growth of 33%, which is higher than the approximatively 25% average annual rate of increase since positions in OTC derivatives were first surveyed by the BIS in 1995. Notional amounts outstanding provide useful information on the structure of the OTC derivatives market but should not be interpreted as a measure of the riskiness of these positions. Gross market values, which represent the cost of replacing all open contracts at the prevailing market prices, have increased by 74% since 2004, to $11 trillion at the end of June 2007.
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A financial future is a futures contract on a short term interest rate (STIR). Contracts vary, but are often defined on an interest rate index such as 3-month sterling or US dollar LIBOR.
They are traded across a wide range of currencies, including the G12 country currencies and many others.
Some representative financial futures contracts are:
United States
90-day Eurodollar *(IMM)
1 mo LIBOR (IMM)
Fed Funds 30 day (CBOT)
Europe
3 mo Euribor (Euronext.liffe)
90-day Sterling LIBOR (Euronext.liffe)
Euro Sfr (Euronext.liffe)
Asia
3 mo Euroyen (TIF)
90-day Bank Bill (SFE)
where
IMM is the International Money Market of the Chicago Mercantile Exchange
CBOT is the Chicago Board of Trade
TOCOM is the Tokyo Commodity Exchange
SFE is the Sydney futures exchange
As an example, consider the definition of the International Money Market (IMM) eurodollar interest rate future, the most widely and deeply traded financial futures contract.
There are four contracts per year: March, June, September, December (plus serial months)
They are listed on a 10 year cycle. Other markets only extend about 2–4 years.
Last Trading Day is the second London business day preceding the third Wednesday of the contract month
Delivery Day is cash settlement on the third Wednesday.
The minimum fluctuation (Commodity tick size) is half a basis point or 0.005%.
Payment is the difference between the price paid for the contract (in ticks) multiplied by the "tick value" of the contract which is $12.50 per tick.
Before the Last Trading Day the contract trades at market prices. The Final Settlement Price is the British Bankers Association (BBA) percentage rate for Three–Month Eurodollar Interbank Time Deposits, rounded to the nearest 1/10000th of a percentage point at 11:00 London time on that day, subtracted from 100. (Expressing financial futures prices as 100 minus the implied interest rate was originally intended to make the contract price behave similarly to a Bond price in that an increase in price corresponds to a decrease in yield).
Financial futures are extensively used in the hedging of interest rate swaps.
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