Short notes on Stock Exchange Transactions

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At the London Stock Exchange stocks are bought and sold either for the account or for cash.

The former way, which is most in use, means that the stock is to be delivered and paid for on the next periodical settlement; the latter depends on a special agreement between the parties, as the regular market quotations are always for the account. The difference between the lowest and the highest figure, viz., be­tween buying and selling prices, is called the turn of the market.

The fluctuations on the prices of stocks give rise to bull or bear speculations and to options.

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A bull speculation means stock bought for the account with a view of selling it at some future time at a higher rate. A speculator staying for the rise is called a bull.

A reverse operation is carried out by a bear, that is, by a speculator who sells stock with a view to an eventual fall in prices, when he hopes to buy back at a lower price.

Both bulls and bears calculate, of course, on the profit likely to arise from the difference between the buying and the selling prices.

It often happens, however, that a bull, having bought stock with a view to a rise, would, when the settling day comes, prefer to carry over the contract to the next settlement, hoping for a favourable change in the market.

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For this accommodation he must pay the seller a certain percentage, which is called contango. The same may be the case with a bear, wishing to put off to the next settlement the delivery of stock he has sold with a view to a fall. The percentage he will pay to the buyer is then termed backwardation.

An option is a transaction by which a buyer or a seller of stock, in consideration of a premium paid to the other contracting party, acquires the right of withdrawing from the operation within a certain time if it has not risen or fallen as he anticipated.

When the option is either of buying or not buying a certain stock at a certain price, the bargain is called a call; the party acquiring the right of option is said to be giving for the call, while the seller is said to be taking for the call.

When, on the contrary, the option is either of sell­ing or not selling, the transaction is called a put; the party acquiring the right of option is then said to be giving for the put, while the other is taking for the put.

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Very often the two operations are combined. This takes place when a speculator agrees to pay option money for the right of either buying or selling, within a certain time, an amount of stock at a given price, or simply of withdrawing from the bargain.

In such a case, the operation is called a put and call; the party taking the option is, of course, said to be giving for the put and call, while the other is said to be taking for the put and call.

Options are also practised sometimes in addition to regular purchases and sales for the account.

A man buying stock may reserve the right of calling for double the amount of the original purchase at the same price. This option bargain is then described as a call of more, while the put of more is the reverse case; that is, an option of placing with the same party, and at the same price, double the amount of stock origin­ally bought.

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Monthly Liquidation.-

The settlement, or liquida­tion of stock bargains for account, takes place twice in the month, that is, every fortnight; and extends over three consecutive days, called the settling days.

The first is called the carrying-over day or making-up day, up to three o’clock in the afternoon of which parties wishing to offer a contango or a backwardation, to keep a transaction open, must hold out their overtures, while option buyers and sellers must declare whether they intend to avail themselves of their right of withdraw­ing from the bargain.

The second is the ticket day, usually employed in the transfer of registered stock, bought or sold for the settlement.

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The third is the pay or settling day, within which all the operations concerning the delivery of stock or the settlement of difference and the closing payments, must be carried out.

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