The role of stock exchanges and trading members. Who are trading member? Introduction to equity risk and how to manage it?

1. Sai Surya Teja Maddikonda

2.  An exchange, is a highly organized market where
(especially) tradable securities, commodities, foreign
exchange, futures, and options contracts are sold and bought.
New York Mercantile Exchange (NYMEX)

3.  A stock exchange is a form of exchange which provides services
for stock brokers and traders to buy or sell stocks, bonds, and
other securities.
 The securities regulation act of 1956 defined stock exchange as “an
association, organization, or an individual which is established for
the purpose of assisting, regulating, and controlling business in
buying, selling and dealing in securities.”
New York Stock Exchange

4.  Securities are traded on a stock exchange.
 They include stock issued by listed companies, unit
trusts, derivatives, pooled investment products and bonds.
 Stock exchanges often function as "continuous auction" markets,
with buyers and sellers consummating transactions at a central
location, such as the floor of the exchange.
 Modern markets are electronic networks, which gives the advantages
of increased speed and reduced cost of transactions.
 Trade on an exchange is by members only.

5.  The initial public offering of stocks and bonds to investors is by
definition done in the primary market and subsequent trading is
done in the secondary market.
 A stock exchange is often the most important component of a stock
market.
 Supply and demand in stock markets are driven by various factors
that, as in all free markets, affect the price of stocks.
Order Entry Book

6.  There is usually no compulsion to issue stock via the stock exchange
itself, nor must stock be subsequently traded on the exchange.
 Such trading is said to be off exchange or over-the-counter. This is
the usual way that derivatives and bonds are traded. Increasingly,
stock exchanges are part of a global market for securities.
 In recent years, various other trading venues, such as electronic
communication networks, alternative trading systems and dark
pools have taken much of the trading activity away from traditional
stock exchanges.

7. To the Individuals
• As an investment channel
• Gaining protection
• Receiving information
To business firms
• Raising capital
• Boosting credibility
To the economy
• Raising capital for the public and
government corporations
• Fully utilizing resources
• As an economic indicator

8.  Broker-dealer
 Day trader
 Floor broker
 Floor trader
 Investor
 Market maker
 Proprietary trader
 Quantitative analyst
 Regulator
 Stock trader
Basically, all of these do is
Selling and Buying.
They are differentiated
based on:
their location of operation,
whose behalf they trade,
what strategies they use to
trade etc.

9.  Raising capital for business
 Going public
 Limited partnerships
 Venture capital
 Corporate partners
 Mobilizing savings for investments
 Facilitating company growth
 Profit sharing
 Corporate governance
 Creating investment opportunities for small investors
 Government capital-raising for development projects
 Barometer of the economy

10.  Risk is the potential of losing something of value.
 Financial risk is an umbrella term for multiple types
of risk associated with financing.
 Risk is a term often used to imply downside risk, meaning the
uncertainty of a return and the potential for financial loss.
Credit Risk
•Concentration
risk
•Consumer
credit risk
•Credit
derivative
•Securitization
Market Risk
•Commodity risk
•Equity risk
•Foreign
exchange risk
•Interest rate
risk
•Volatility risk
Liquidity Risk
•Refinancing risk
Operational Risk
•Legal risk
•Political risk
•Reputational
risk
•Settlement risk
•Valuation risk

11.  Risk management is the process of measuring, or assessing risk and
then developing strategies to manage the risk while attempting to
maximize returns.
 Typically involves utilizing a variety of trading techniques, models
and financial analyses.
Scanning
Take
Position
Monitor Exit
The process of Trading
Stop-Loss,
Take-Profit,
Entry,
Exit Criteria

12.  Before you trade a stock, know how much you are willing to lose.
 Check the Liquidity: can you buy or sell promptly.
 Determine the Stop-Loss level before trading.
 Determine your profit target (take-profit level).
 Buy the stock only at an acceptable price level. Use a limit order
when you buy a stock.
 Take profit when the trade reaches your profit target.

13.  Follow the trend of the market: A market trend may last a single day,
a month or a year and again short term trends operate within long
term trends.
 Portfolio Diversification: To diversify your risk by investing in a
portfolio. In a portfolio you diversify your investment to several
companies, sectors and asset classes.
 There is a probability that while the market value of a certain
investment decreases that of the other may increase.

14. Thank You