While the term short selling is often associated with day traders and professional traders, seen as a means of speculating, there is a lot more to this activity. The term short selling relates to the practice of borrowing a security, selling into the market with the expectation of buying back lower down. We will cover some variations in a moment, but this best describes short selling in a nutshell.
During your time as a day trader/asset management client, you will undoubtedly have come across the term beta. This is a term used to represent the volatility between, for example, individual stocks and a stock market. While often associated with short-term trading, it is also essential to recognise the value of beta from an asset management point of view.
The Internet has brought online trading to the masses, prompting a vast increase in the number of day traders. However, access to real-time information has also impacted the number of people adopting alternative investment strategies. So, how many different types of investment trader are there?
The world of wealth management is, in theory, relatively straightforward, but in practice, there are several challenges. For example, in the UK, we recently saw the Autumn Budget announcement, which impacted an array of areas that have previously remained relatively untouched. Consequently, the subject of wealth management and asset management has very much come to the fore.
Whether looking at clearing services in isolation or as part of more comprehensive clearing and custody services, investors should be aware of their importance. Since stock markets were opened up to the broader public, traders, and long-term investors, many of us give little consideration to clearing and custody services. However, they are at the heart of any investment market!
Many will have heard of the CREST stock settlement system which is an acronym for Certificateless Registry for Electronic Share Transfer. While we often take this stock settlement/clearing service for granted, it has played an integral role in the settlement, clearing and custody of various stocks and investment instruments. Before we look at CREST Depository Interests, it is important to note that CREST is not a monetary clearing service, but one of the best-known stock settlement/clearing services.
Unless you have delved into how trading networks operate, it is unlikely that you will have come across the term low latency execution. This is especially important in this day and age, with a significant increase in high-frequency trading. In addition, the introduction of trading bots, artificial intelligence, and other automated trading services means that speed is even more critical. During the modern-day trading environment, every nanosecond or microsecond counts!
A recent report into algorithmic trading by the Hong Kong Academy of Finance has cast an interesting light on this dark art. To put this into perspective, algorithmic trading accounted for:-
Over the last few years, we have seen the emergence of a new trend which is somewhere between execution-only anddiscretionary management, at least in the eyes of many investors. This new trend is commonly referred to as copy trading or mirror trading. As the term suggests, it is the simple process of copying the transactions of a particular individual or company. However, it becomes a bit more complicated once we begin to dig a little deeper.
In simple terms, clearing services relate to the process of reconciling purchases and sales across a range of different investment assets. Ultimately, this will lead to the exchange of funds and stock to settle a transaction. It all sounds straightforward in theory, but in practice, it can be a little more complex. However, the modern-day system is highly flexible!