Financial Markets: characteristics and global trends
1. Characteristics of Financial markets
Transparency: - The extent to which investors have access to required financial information about a company such as price levels or audited financial reports. - In other words: The more transparency, the better. In this way, investors can access to the information to act.
Freedom: The extent to which the prices are determined by the open market and by consumers. In a free market the laws and forces of supply and demand are free from any intervention by a government, or by other authority. - In other words: there is no interaction of the government and you do it through the laws of supply and demand.
Depth: Market's ability to sustain relatively large market orders without impacting the price of the security. - In other words: Large orders of a specific assets do not have a high impact on the price. Short orders will affect the price. - Example: If a stock is extremely liquid and has a large number of buyers and sellers, purchasing a bulk of shares typically will not result in noticeable stock price movements
Efficiency: Degree to which market prices reflect all available, relevant information. If markets are efficient, than all information is already incorporated into prices, and so there is no way to "beat" the market because there are no under- or overvalued securities available. - In other words: It’s a perfect efficient market were prices of a share reflect the value that they should have for a specific company. - Example: If the share of a company is of 10€, but in 5 years they create a product that will succeed, there will be an increase in the price of the share, but you don’t know this now. So, the perfect situation would be that the price reflects all the changes and future achievements.
2. Global trends in financial markets
Impact of new technologies: like robotics. This affects the market because robots don’t use the same logic than humans, and many companies are trying to use robots instead of investors and analysist. Also like Crowdfunding; offers new possibilities to get more funds. - Examples: Service-based Investing: Upcoming industry of paid services around low-cost investing. Robo Investing: Online wealth management service providing automated, algorithm-based portfolio management advice without using human financial planners. Digital-based crowdfunding: Digital platforms offering accredited investors the option to fund seed and early stage companies.
Securitisation: - Process of taking an illiquid asset, or group of assets, and through financial engineering, transforming it (or them) into a security.
Deregulation: - Process of removing or reducing state regulations in the financial market. - Sometimes, the government does not intervene in financial markets, as much as, people think they have to do.
Popularity: - Investing popularity has increased exponentially during the last few years. - Example: Chinese retail investors; opened millions of accounts, and they are having an impact on the prices of this stock, because they are investing like crazy.
Globalisation: - Nowadays markets have become global, therefore investors can invest in other countries and the possibilities, as an investor, to select an asset, are higher than were before. But if something happens in the other side of the world, it will affect the country. Like Brexit, this affected to all the countries. - Pros of globalization: Access to new markets all over the world. - Cons of globalization: increased contagion susceptibility between global markets. Example: Brexit.
*All the content has been gathered from Tecnocampus' slides and own knowledge.
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