MARKET
Aftermarket
Auction market
• Markets in which the prevailing price is determined through the free interaction of
prospective buyers and sellers, as on the floor of the stock exchange.
• A market in which buyers enter competitive bids, and sellers enter competitive
offers simultaneously. The NYSE is an auction market.
Bank market
• Is the spot and forward markets for currencies. Here, there are known
counterparties to the transactions.
Bear market
• A market in which prices of a certain group of securities are falling or are expected
to fall. See also: Bull Market.
Black market
• An illegal market.
Brokered market
Bull market
• A market or a certain group of securities in which prices are rising or are expected
to rise. See also: Bear Market.
Bulldog market
Buyer's market
Capital market
• The market that trades long-term debt securities and common and preferred equity
securities.
• The market for trading long-term debt instruments (those that mature in more than
one year).
• The view that issuing debt is generally valuable but that the firm's optimal choice of
capital structure is a dynamic process that involves the other views of capital
structure (net corporate/personal tax, agency cost, bankruptcy cost, and pecking
order), which result from considerations of asymmetric information, asymmetric
taxes, and transaction costs.
• Abbreviated CML. The line defined by every combination of the risk-free asset and
the market portfolio.
• Is the implied term structure for a commodity market. It lists progressively higher
prices for the more distant delivery months. This progression in prices reflects the
assumption of cumulatively higher storage and financing costs over time.
Cash market
• Traditionally, this term has been used to denote the market in which commodities
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were traded, for immediate delivery, against cash. Since the inception of futures
markets for T bills and other debt securities, a distinction has been made between
the cash markets in which these securities trade for immediate delivery and the
futures markets in which they trade for future delivery.
• Also called spot markets, these are markets that involve the immediate delivery of
a security or instrument. Related: derivative markets.
Common market
• An agreement between two or more countries that permits the free movement of
• A market in which there is a distinct marketable security for each and every
possible outcome.
Corner a market
Crossed market
• Occurs when a broker/dealer's bid is greater than the lowest or best offer made by
another. This condition can also occur when a broker/dealer's offer is lower than
another's bid. Sometimes, this can occur because of slow updates in a
broker/dealer's range of marketing making activities. However, when a crossed
market occurs because of intention behavior, then this activity is prohibited by the
NASD.
• Invest in securities and derivatives which go across borders. These funds try to
capitalize on interest rate differentials between currencies, varying investment
climates for different countries, relative volatilities in equity or credit markets, and
variations of the other hedge fund themes.
Dealer market
• A market where traders specializing in particular commodities buy and sell assets
for their own accounts.
Debt market
Depth of a market
Derivative markets
• Buyers and sellers seek each other directly and transact directly.
Domestic market
• Part of a nation's internal market representing the mechanisms for issuing and
trading securities of entities domiciled within that nation. Compare external market
and foreign market.
Efficient market
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• A market that allocates funds to their most productive uses due to competition
among wealth-maximizing investors; it determines and publicizes prices that are
believed to be close to their true or intrinsic value (inherent worth). It is an assumed
perfect market in which there are many small invewstors, each having the same
information and expectations with respect to securities; there are no restrictions on
investment, no taxes, and no transaction costs; and all investors are rational, view
securities similarly, and are risk-averse, preferring higher returns and lower risk.
Emerging markets
• Narrow their investment horizon to issues in markets which are not as mature or
liquid as the previous group. However, these less developed markets are believed to
offer greater risk adjusted rates of return. A general perspective is akin to getting in
on the ground floor.
• The slope of the capital market line (CML). Since the CML represents the return
offered to compensate for a perceived level of risk, each point on the line is a
balanced market condition, or equilibrium. The slope of the line determines the
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Equity market
• A large number of international banks that make long-term, floating rate, hard-
currency (typically U.S. dollar-denominated) loans in the form of lines of credit to
international corporate and government borrowers.
• The money market for borrowing and lending currencies that are held in the form of
deposits in banks located outside the countries of the currencies issued as legal
tender.
• The market for short-term bank deposits denominated in U.S. dollars or other
easily convertible currencies. International equivalent of the domestic money market.
The portion of the Euromarket that provides short-term, foreign-currency financing to
subsidiaries of MNCs.
Euroequity market
• The capital market around the world that deals in international equity issues;
London has become the center of Euro-equity activity.
Euromarket
• The international financial market that provides for borrowing and lending
currencies outside their country of origin.
• The transformation of the European Union into a single market at year-end 1992.
• The difference between the return on the market portfolio and the risk less rate.
External market
• Also referred to as the international market, the offshore market, or, more
popularly, the Euromarket, the mechanism for trading securities that (1) at issuance
are offered simultaneously to investors in a number of countries and (2) are issued
outside the jurisdiction of any single country. Related: internal market
Fast market
• Is a trading condition when prices change quickly and volume is dramatic. At these
times, the price reports are behind and a trading range of prices is substituted for
price dissemination. Often special rules apply at such times.
• The market where banks can borrow or lend reserves, allowing banks temporarily
short of their required reserves to borrow reserves from banks that have excess
reserves.
• Abbreviated FOMC. Consists of seven members of the Federal Reserve Board and
five of the twelve Federal Reserve Bank Presidents. The President of the New York
Federal Reserve Bank is a permanent member, while the other Presidents serve on
a rotating basis. The Committee periodically meets to set Federal Reserve
guidelines regarding purchases and sales of Government Securities in the open
market as a means of influencing the volume of bank credit and money. The FOMC
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Financial market
• An institution at which the customer can obtain a full array of the financial services
now allowed under federal bank, trust and insurance company legislation.
Flat market
• Is a term structure whereby the various delivery months are basically trading at the
same price level or yield.
• That portion of domestic bank loans supplied to foreigners for use abroad.
• That portion of the domestic bond market that represents issues floated by foreign
companies to governments.
• That portion of the domestic equity market that represents issues floated by foreign
companies.
Foreign market
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• Part of a nation's internal market, representing the mechanisms for issuing and
trading securities of entities domiciled outside that nation. Compare external market
and domestic market.
• A measure of foreign market risk that is derived from the capital asset pricing
model.
Forward market
Fourth market
Futures market
Gray market
• Purchases and sales of eurobonds that occur before the issue price is finally set.
• Abbreviated IOM. A division of the CME established in 1982 for trading stock index
products and options. Related: Chicago Mercantile Exchange (CME).
Inside market
• The highest bid and the lowest offer prices among all competing Market Makers in
a NASDAQ security, i.e., the best bid and offer prices.
• The spread between the interest rate offered in two sectors of the bond market for
• Is the network which links the trading floors of several registered exchanges. It
encourages competition in issues listed on the American or New York Stock
Exchanges with the other participating regional exchanges. The competitive edge
occurs if there is a better price out in the network than on a particular exchange. If
so, then a broker or market maker can execute at that better price.
Internal market
• The mechanisms for issuing and trading securities within a nation, including its
domestic market and foreign market. Compare: external market.
• A vibrant equity market that emerged in the past 20 years to allow corporations to
sell large blocks of shares in several different countries simultaneously.
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International market
• Abbreviated IMM. A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).
• The spread between two issues of the same maturity within a market sector. For
Inverted market
• A futures market in which the nearer months are selling at price premiums to the
more distant months. Related: premium.
• Is the market condition whereby the deferred or more forward delivery months are
at a progressive discount to the spot or nearby month. This condition is marked by
premiums for immediate or nearby deliveries. This is also known as a backwardation
market. This is opposite to a contango or carrying charge market.
Locked market
• A market is said to be locked if the bid price equals the asked price. This can
occur, for example, if the market is brokered and brokerage is paid by one side only,
the initiator of the transaction.
• A market is locked if the bid = ask price. This can occur, for example, if the market
is brokered and brokerage is paid by one side only, the initiator of the transaction.
Make a market
• A dealer is said to make a market when he quotes bid and offered prices at which
he stands ready to buy and sell.
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• A dealer is said LO make a market when he quotes bid and offered prices at which
he stands ready to buy and sell.
• To stand ready to buy or sell a particular security as a dealer for its own account. A
market maker accepts the risk of holding the security. See also: Market Maker.
Mark to market
• The process whereby the book value or collateral value of a security is adjusted to
reflect current market value.
Marked to market
Market
• Is an order to buy or sell an instrument at the prevailing price (bids and offers). In
the case of a buy order it means taking the offers whereas for a sell order it means
hitting the bids.
Market arbitrage
• The simultaneous purchase and sale of the same security in different markets to
take advantage of a price disparity between the two markets.
Market capitalization
• The total dollar value of all outstanding shares. Computed as shares times current
market price. It is a measure of corporate size.
• The dollar valuation of the total number of shares times the current price. This
value is sometimes used by investors to classify stocks by size. It is not as reliable
as classifying by sales dollar value because the price of a stock can be inflated by
the market and not accurately representative of its size.
Market clearing
• Total demand for loans by borrowers equals total supply of loans from lenders. The
market, any market, clears at the equilibrium rate of interest or price.
• Also called conversion parity price, the price that an investor effectively pays for
common stock by purchasing a convertible security and then exercising the
conversion option. This price is equal to the market price of the convertible security
divided by the conversion ratio.
Market cycle
• The period between the 2 latest highs or lows of the S&P 500, showing net
performance of a fund through both an up and a down market. A market cycle is
complete when the S&P is 15% below the highest point or 15% above the lowest
point (ending a down market). The dates of the last market cycle are: 12/04/87 to
10/11/90 (low to low).
• Refer to theories which try to explain financial market behavior. Some hypotheses
state that the markets are rigorously efficient and operate by an immediate
discounting of perfect information. Other theories state that the markets are relatively
inefficient, particularly when socially-oriented goals are also to be considered. Other
hypotheses state that information is good or even very good but not perfect. Also,
not all market participants believe or simultaneously act on new data or information.
The latter theorists believe that the markets try to attain pure efficiency. However,
they also recognize that competition breeds asymmetrical change and this
Market if touched
• Abbreviated MIT. A price order, below market if a buy or above market if a sell, that
automatically becomes a market order if the specified price is reached.
• Is an order that becomes market action when a price is hit. Buy Market if Touched
orders are activated when the market price declines to the stated level. Then the
broker is authorized to buy to satisfy the quantity. This is different than a limit order
where all the quantity must be executed at the stated price or better.
• Also called price impact costs, the result of a bid/ask spread and a dealer's price
concession.
Market maker
One of the major differences between The NASDAQ Stock Market and other major
markets in the U.S. is NASDAQ's structure of competing Market Makers. Each
Market Maker competes for customer order flow by displaying buy and sell
quotations for a guaranteed number of shares. Once an order is received, the
Market Maker will immediately purchase for or sell from its own inventory, or seek
the other side of the trade until it is executed, often in a matter of seconds.
• Is a party who is prepared to buy and sell securities from all parties at the market
maker s bid and offer.
• The difference between the price at which a Market Maker is willing to buy a
security and the price at which the firm is willing to sell it. Simply put, the Market
Maker Spread is the difference between the bid and ask for a given security. Since
each Market Maker can either buy or sell a stock at any given time, the spread is
representative of the profit Market Maker makes on each trade.
Market model
• This relationship is sometimes called the single-index model. The market model
says that the return on a security depends on the return on the market portfolio and
the extent of the security's responsiveness as measured, by beta. In addition, the
return will also depend on conditions that are unique to the firm. Graphically, the
market model can be depicted as a line fitted to a plot of asset returns against
returns on the market portfolio.
Market on close
• Is an order to buy or sell on the close of a market. Typically, there is a brief period
prior to the day's cessation of trading which is defined as the close. This period
varies from market-to-market and exchange-to-exchange.
Market on opening
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Market order
• This is an order to immediately buy or sell a security at the current trading price.
• The theory that in certain situations, institutions wish to sell their shares but
postpone the share sales because large orders under current market conditions
would drive down the share price and that the consequent threat of securities sales
will tend to retard the rate of share price appreciation. Support for this theory is
largely anecdotal.
Market portfolio
• A portfolio consisting of all assets available to investors, with each asset held -in
proportion to its market value relative to the total market value of all assets.
• The amount by which the market value exceeds the straight or conversion value of
a convertible security.
• A measure of the extra return, or risk premium, that investors demand to bear risk.
The reward-to-risk ratio of the market portfolio.
Market prices
• The amount of money that a willing buyer pays to acquire something from a willing
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seller, when a buyer and seller are independent and when such an exchange is
motivated by only commercial consideration.
Market return
• The expected return on the market portfolio of all traded securities. Since it is an
expected return, it is always greater than the risk-free rate of return because market
participants are assumed to be risk-averse wealth maximizers.
• Market risk is the risk that investments will change in value based on changes in
general market prices.
• A graph of the discount rates associated with each level of project risk.
Market sectors
• Theory suggesting that the market for loans is segmented on the basis of maturity
and that the sources of supply and demand for loans within each segment determine
its prevailing interest rate; the slope of the yield curve is determined by the general
relationship between the prevailing rates in each segment.
• A biased expectations theory that asserts that the shape of the yield curve is
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determined by the supply of and demand for securities within each maturity sector.
Market stabilization
• The process in which an underwriting syndicate places orders to buy the security
that it is attempting to sell to keep the demand for the issue, and therefore its price,
at the desired level.
Market surveillance
Market timer
• A money manager who assumes he or she can forecast when the stock market will
go up and down.
Market timing
• Asset allocation in which the investment in the market is increased if one forecasts
that the market will outperform T-bills.
• Costs that arise from price movement of the stock during the time of the transaction
which is attributed to other activity in the stock.
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Market value
• (1) The price at which a security is trading and could presumably be purchased or
sold. (2) The value investors believe a firm is worth; calculated by multiplying the
• The price at which investors buy or sell a share of common stock or a bond at a
given time. Market value is determined by the interaction between buyers and
sellers.
• Ratios that relate the market price of the firm's common stock to selected financial
statement items.
• Weights that use market values to measure the proportion of each type of capital in
the firm's financial structure; used in calculating the weighted average cost of capital.
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Marketability
Marketable securities
Marketed claims
• Claims that can be bought and sold in financial markets, such as those of
stockholders and bondholders.
• The degree to which the prices of assets reflect the available marketplace
information. Marketplace price efficiency is sometimes estimated as the difficulty
faced by active management of earning a greater return than passive management
would, after adjusting for the risk associated with a strategy and the transactions
costs associated with implementing a strategy.
Marking to market
Matador market
Money market
• The market in which short-term debt instruments (bills, commercial paper, bankers'
acceptances, etc.) are issued and traded.
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• The market where debt securities that will mature within one year are traded.
• Money markets are for borrowing and lending money for three years or less. The
securities ina money market can be U.S.government bonds, treasury bills and
commercial paper from banks and companies.
• The securities market that deals in short-term debt. Money-market instruments are
forms of debt that Mature in less than one year and are very Liquid. Treasury bills
make up the bulk of the money-market instruments.
• The market in which short-term debt instruments (bills, commercial paper, bankers'
• A bank that is one of the nation's largest and consequently plays an active and
important role in every sector of the money market.
• A mutual fund that invests only in short term securities, such as bankers'
acceptances, commercial paper, repurchase agreements and government bills. The
net asset value per share is maintained at $1. 00. Such funds are not federally
insured, although the portfolio may consist of guaranteed securities and/or the fund
may have private insurance protection.
• A Mutual Fund that invests in short-term debt instruments. The fund's objective is
to earn interest while maintaining a stable net asset value of $1.00 per share.
Generally sold with no load, the fund may also offer draft-writing privileges and low
opening investments.
• Are mutual funds which invest in short-term instruments such as treasury bills,
commercial paper, and asset backed securities (ABS). Broadly defined, these
investments have maturities, and for some, durations less than a year. Often, these
funds try to keep the average maturity or quantitative duration within 2-3 months.
• The use of borrowing and lending transactions in foreign currencies to lock in the
home currency value of a foreign currency transaction.
National market
Negotiated markets
Nonmarketed claims
• Claims that cannot be easily bought and sold in the financial markets, such as
those of the government and litigants in lawsuits.
Normal market
• A market in which only one side, the bid or the asked, is quoted or firm.
• (1) A market in which only one side, the bid or asked, is quoted or firm. (2) A
market that is moving strongly in one direction. OPEC (Organization of Petroleum
Exporting Countries) A cartel of oil-producing countries.
• Purchases and sales of government and certain other securities in the open market
by the New York Federal Reserve Bank or directed by the FOMC in order to
influence the volume of money and credit in the economy. Purchases inject reserves
into the bank system and stimulate growth of money and credit; sales have the
opposite effect. Open market operations are the Federal Reserve's most important
and most flexible monetary policy tool.
• Company purchases of its own shares on a stock exchange at the market price
once approval from the stock exchange is received; termed a normal course issuer
bid in Canada.
• Also called an internally efficient market, one in which investors can obtain
transactions services that reflect the true costs associated with furnishing those
services.
Otc market
• The term used to describe a security that is traded through the telephone- and
computer-connected OTC Market rather than through an exchange.
• The security exchange system in which broker-dealers negotiate directly with one
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another rather than through an auction on an exchange floor. The trading takes
place over computer and telephone networks that link brokers and dealers around
the world. Both listed and OTC securities, as well as municipal and U.S. government
securities, are traded in the OTC market.
• Markets in which no trader has the power to change the price of goods or services.
Perfect capital markets are characterized by the following conditions: 1) trading is
costless, and access to the financial markets is free, 2) information about borrowing
and lending opportunities is freely available, 3) there are many traders, and no single
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Primary market
• The first buyer of a newly issued security buys that security in the primary market.
All subsequent trading of those securities is done in the secondary market.
• Market in which financial securities are initially issued and where the issuer
receives the proceeds from the sale of the financial security (ie. capital formation
occurs).
Range markets
• The ratio of the market price per share of the acquiring firm paid to each dollar of
market price per share of the target firm.
Real market
• The bid and offer prices at which a dealer could do size. Quotes in the brokers
market may reflect not the real market, but pictures painted by dealers playing
trading games.
• The bid and offer prices at which a dealer could do size. Quotes in the brokers
market may reflect not the real market, but pictures painted by dealers playing
trading games.
Rembrandt market
Samurai market
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Secondary market
• A market made for the purchase and sale of outstanding issues following the initial
distribution.
• The market that allows the owner of a previously created financial security to sell
this security, to buy more of this or other securities, or for a buyer to express an
interest in acquiring a financial security.
• A market in which an investor purchases an asset from another investor rather than
the issuing corporation. An example is the New York Stock Exchange. All stock
exchanges are part of the Secondary Market, where investors buy securities from
other investors (as opposed to an issuing company). See also: Primary Market.
• Is the aftermarket or the status for trades after an initial public offering (IPO). See
Initial Public Offering.
• The market where securities are traded after they are initially offered in the primary
market. Most trading is done in the secondary market. The New York stock
Exchange, as well as all other stock exchanges, the bond markets, etc., are
secondary markets. Seasoned securities are traded in the secondary market.
• Abbreviated SML. The depiction of the capital asset pricing model (CAPM) as a
graph that reflects the required return for each level of nondiversifiable risk (beta).
• Line representing the relationship between expected return and market risk.
• A plane that shows the equilibrium between expected return and the beta
coefficient of more than one factor.
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Seller's market
• Refers to a situation when a holder of assets has greater flexibility and influence in
receiving improved bids or proposals. Often the number of potential buyers is
greater and the prices higher than those previously transacted.
Spot market
• Market for immediate as opposed to future delivery. In the spot market for foreign
exchange, settlement is two business days ahead.
Stock market
• Also called the equity market, the market for trading equities.
• Demand and supply factors affecting price, in particular the net position-long or
short-of dealers.
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• Demand and supply factors affecting price, in particular the net position, either long
or short, of the dealer community.
Thin market
• A market in which trading volume is low and in which consequently bid and asked
quotes are wide and the liquidity of the instrument traded is low.
• A market in which trading volume is low and in which consequently bid and asked
quotes are wide and the liquidity of the instrument traded is low.
Tight market
• A tight market, as opposed to a thin market, is one in which volume is large, trading
is active and highly competitive, and spreads between bid and ask prices are
narrow.
• A tight market, as opposed to a thin market, is one in which volume is large, trading
is active and highly competitive, and spreads between bid and ask prices are
narrow.
• A market in which both bid and asked prices, good for the standard unit of trading,
are quoted.
• A market in which both bid and asked prices, good for the standard unit of trading,
are quoted.
Upstairs market
• A network of trading desks for the major brokerage firms and institutional investors
that communicates with each other by means of electronic display systems and
telephones to facilitate block trades and program trades.