Investment Process 1

1. IPO

   Nota:

   • Initial public offering where an underwriter publicises new offering. Bookbuilding is porcess of polling indications of interest by large investors. IPOs are generally underpriced which makes them attractive however in the long term they tend to under perform 

1. Four ways trading occurs in secondary market

   Nota:

   • Direct search- Buyers and seller find each other Brokered markets- Brokers search out buyers and sellers Dealer markets- Dealers have inventories of assets from which they buy and sell Auction markets- traders converage at one place to trade
2. 3 mechanisms

   Nota:

   • dealer markets- arises when trading activity in a particular type of asset increases.  electronic communication networks- allows participants to post market and limit orders over computer networks. This elimates bid-ask spread that is incurred using broker-dealer system and is fast. formal exchanges- Where trading in each security is managed by a specialist. Brokers who wish to buy or sell shares on behalf of their clients must direct the trade to the specialist's post on the floor of the exchange. 

Nota:

• This involves investor borrowing part of a stock's purcase price from a broker ad contributing the remainder themselves. Margin is the fraction of the price the investor contributes and the maintenance margin is the minimum value that must be kept in the maintenance account. investor will be subject to a margin call if the value of the securities falls below.
• Know how to mathematically account for this

Nota:

• Purpose is to profit from a decline in the price of a stock of security. This involves investor borrowing shares through a dealer and selling them. They deposit the proceeds from sale and close out position by buying equivalent number of shares and returning them to dealer