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Stock Exchange: Trading
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Stock exchange transactions involve the activities of brokers and dealers. These individuals facilitate the buying and selling of financial assets. Brokers execute trades on behalf of clients and receive commissions and fees in exchange for matching buyers and sellers. Dealers, on the other hand, buy and sell from their own portfolios (inventories of securities). Dealers earn income by selling a financial instrument at a price that is greater than the price the dealer paid for the instrument. Some exchange participants perform both roles.
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Stock exchanges are formally organized secondary markets for financial assets that have already been issued in primary capital markets. Stock markets have become the hallmark of successful modern capitalist economies, despite the frequency of volatile price movements that lead to excessive speculation followed by panics and despite repeated scandals. They play an important role... for both the primary capital market and the mobilization of bank credit within any economy, basically by providing liquidity for the initial investors in government or corporate debt or in corporation stock. The assurance that a ready market exists for the sale of an investor's holdings in case of second thoughts, emergencies, or better alternatives for investment makes it easier to place debt or equity in the first place on the primary capital market. The daily pricing of all such financial products on a stock exchange also makes them ideal instruments as collateral for loans. In sum, stock exchanges are important complements to the efficient operation of the rest of an economy's financial sector.
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Stock exchanges encourage investment by providing this secondary market. Stock exchanges ... encourage investment in other ways. They protect investors by upholding rules and regulations that ensure buyers will be treated fairly and receive exactly what they pay for. Exchanges also support state-of-the-art technology and the business of brokering. This support helps traders buy and sell securities quickly and efficiently. Of course, being able to sell a security in the secondary market increases the relative safety of investing because investors can unload a stock that may be on the decline or that faces an uncertain future.
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Computer-driven trade has significantly affected the stock exchange. Computer and telecommunications technology, besides opening a wide market in over the counter dealings, has ... given rise to trading on an international level. Personal computers and modems allow trading to occur around the clock (after-hours NYSE and Nasdaq trading began in 1999), and the securities trading on one major stock exchange can now significantly affect the trading on others. Many contend that the traditional manner of trading will eventually become obsolete. Technology also now allows for “day trading,†a high-risk business in which numerous computerized trades are made during a single day, with large gains (and large losses) possible. See also margin requirement.
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At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
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You are protected under civil law and the Compensation Fund administered by the Jamaica Stock Exchange, specifically for that purpose. ( Please refer to Jamaica Stock Exchange’s brochure on “The Compensation Fund” ). However, the Council of the Jamaica Stock Exchange monitors the financial situation of all brokers. When the Exchange sees fit, it can act on an a priori basis to prevent a broker from continuing to trade before a situation becomes critical.
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