Se­cu­ri­ties mar­ket trad­ing

The Herald (Zimbabwe) - - Business -

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!

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