Securities market trading
TRADING of securities is the central activity of securities exchanges such as the Zimbabwe Stock Exchange (ZSE) and the Financial Securities Exchange (FINSEC). It facilitates investment, risk management, and capital formation. Securities markets play an important role in mobilising resources and channelling them into the production sector. Well-functioning markets are therefore critical for the well-being and growth of an economy.
The nature of any securities market depends on many factors including liquidity, market pricing efficiency as well as the behaviour of the underlying traders. It is therefore crucial for investors to have a reasonable understanding of the determinants of market quality, when they can trade, how to trade and how exchange rules affect their trading. Liquidity is the degree to which an asset or security can be quickly bought / sold in the market without affecting the asset’s price. Consequently, markets are liquid when traders can easily arrange trade without affecting prices much. Price efficiency is the extent to which security prices reflect market place information. Prices are efficient when traders cannot use publicly available information to predict future price changes. A market with such pricing structures is thus an efficient market. Simply put, an efficient market is one where the market price is an unbiased estimate of the true value of the investment. Market quality depends primarily on traders. A market is liquid when traders give one another an opportunity to fill their orders. Volatility is the rate at which security prices change. Prices are volatile when security prices change quickly. There are three broad groups of traders involved in the trading process of a securities market, namely: ◆ Utilitarian traders, ◆ Informed traders and, ◆ Dealers. For more details on each of the above mentioned types of traders, stay tuned until next week!