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A Quick Way to Solve a Problem with Trade Capture in Trade Life Cycle

Posted on by Imarticus Learning

In the economic market, “Trade Capture” means booking / capturing the trade into the structure used within the financial organization. At times, this may arise multiple times based on the intricacy of the trades and the capacity of the systems to be able to capture the economic, non-economic, and static details depending on the deal.
The rewarding trade capture within a trading system occurs when the trade facts are sent to the back office instantly, through an interface for operational processing. Most of the time, the trade details are recorded manually by the traders, when an STO (Securities Trading Organisation) does not have a trading system. This requires either collection by or distribution to the middle office or settlement department for operational processing. In such conditions, the traders are required to manage their trading positions manually, keeping it trendy with any latest trades.
The entire steps from the stage of order receipt and trade execution to the trade settlement are known as the “Trade Cycle”. This can be categorized into various stages as listed below.
Front Office
The front office, commonly referred to as the Trading Floor, performs two main function –

  • Trade Capture

The trade gets initiated in the front office using the trading app, in accordance with the retail price of the instrument. Still, the buyer will have an opportunity to cite an offer to the selling party. The trade gets executed, only if the counterparty agrees to the trade details and is willing to enter the deal. Once the trade gets executed, it gets captured using a Trade Capture system, which gives the go-ahead to all the necessary trade information and assigns a trade confirmation number or a trade reference number. This number is unique and used for all the upcoming trade events such as amendments, cancellation and so on. This unique number indicates the booking confirmation and is sent to both sellers and buyers as an acknowledgment.
Middle Office
The Middle Office plays a very important part of the exception management. At this stage, three important steps are accomplished such as –

  • Validation
  • Booking
  • Confirmation

By using the Order Management System (OMS), the tradesman works on the deal and the trade gets enhanced by the static data such as the Standard Settlement Instructions (SSI), Custodian Details, City Holidays, Special Instructions and so on. These static data details are vital for the execution and settlement of the trade. The allocation of the trade happens in the Middle Office, gets published in the Back Office, and finally considered live and operational.

Back Office
The Back office is considered the “backbone” of the entire trade life cycle. It mainly performs three vital functions such as –

  • Clearing
  • Settlement
  • Accounting

This stage covers the significant operational activities such as record keeping, order confirmations, trade settlement, and regulatory reporting. Most of the time, the back office tasks are deployed to low-priced sources for its specific management activities, with a view to reducing the company costs, thus increasing their productivity by delivering better operational value.
The next activity soon after the trade execution is to capture the entire trade details, regardless of the base it is recorded without any hindrances. The trade which is executed initially is captured in the front office where the primary details of each Asset Management in trade are being recorded.

Conclusion
The complete Trade Life Cycle is a jumble of complex functions where the trade undergoes a stream of several events. There is a lot of manual involvement in all these events and this increments the time spent for processing and settlement of various functions.

 

Trade Life Cycle – The Process of Buying And Selling!

Posted on by Imarticus Learning

What is trade?

Trade is the process of buying and selling any financial instrument.

The lifecycle of a trade is the fundamental activity of investment banks, hedge funds, pension funds, and many other financial companies. There is no better way to understand the workings of a financial institution than to follow the progress of a trade through all of its various stages and all the activities performed upon it. In the financial market, “trade” means to buy and/or sell securities/financial products. 

 

To explain it further, a trade is the conversion of an order placed on the exchange which results in pay-in and pay-out of funds and securities. The trade ends with the settlement of the order placed.

All the steps involved in a trade, from the point of order receipt and trade execution through to settlement of the trade, are commonly referred to as the ‘trade lifecycle’.

Trading has evolved from a humble apple grower wanting a stable price for his produce come harvest time, to a complex and exciting industry comprising a significant share of the global economy, and more recently, taking a hand in saving it. 

It is the fundamental activity of investment banks, hedge funds, pension funds, and many other financial companies. There is no better way to understand the workings of a financial institution than to follow the progress of a trade through all of its various stages and all the activities performed upon it.

Just like any other product, even trade has its life cycle involving several steps, as those with a career in Capital Markets know.

All the steps involved in a trade, from the point of pre-negotiations and trade execution through to settlement of the trade, are commonly referred to as the trade life cycle. The Trade life cycle consists of a series of logical stages and steps.

What are the Steps Involved in a Trade Life Cycle?

1. Sale

  • This is a process of client acquisition in which HNIs or Institutional clients are introduced to various investment products or vehicles.
  • These vehicles or products are available with an Investment Manager or Bank by whom the client’s investments are managed.
  • The investments are collectively called Mutual or Hedge funds.


2. Trade Initiation and Execution

  • This is the process of placing an order in the market.
  • Trade Initiation and Execution can be done both in Order and Quote-driven markets.
  • This depends on the choice of a marketplace and the external platform.
  • Once the order is placed and it gets matched, the trade is said to be executed.


3. Trade Capture

  • Trades are then booked internally in an FO system for it to flow down to the operating systems.
  • It is booked in a Risk Management System (RMS)


4. Trade Validation and Enrichment

The reference data team set up the static and dynamic details which help middle office teams to validate the trade, before releasing instructions into the market.


5. Trade Confirmation 

  • This is an extremely critical step for the trade settlement.
  • Trade details and SSIs are agreed with the counterparty at bachelor schreiben lassen least a day before the settlement date.
  • Confirmation via depositories like Euro clear/DTCC


6. Trade Settlement 

This is the process of simultaneous exchange of cash versus securities for a security trade or cash versus cash for a Derivatives trade.


7. Reconciliation 

Reconciliation involves matching ledgers against statements to ensure correct accounting of all trade books.

The beauty of Investment Banking Operations, as taught in any school of investment banking, is the trade life cycle and its mechanisms akademisches ghostwriting.  It has always fascinated me to think how innovative and creative a financial institution can work to get a job done.
Whilst working through the life cycle, one must keep in mind the reason for its existence, the end result and the factors that surround it.

Steps Involved in a Trade Life Cycle

Pointers to remember:

  • The reason the market and its participants trade securities and financial instruments hausarbeit schnell schreiben, the current drivers and trends in modern securities markets.
  • The methods the trades are executed, that any financial analyst course can teach you.
  • It is very important for an organization to identify, describe and create a clear picture of the events scheduled for a trade.
  • The operations team needs to be familiar with the key terms used in the fields of trade processing and its administration
  • Understand the interaction and dependability of each department through which the trade flows.
  • Understand the role of IT, identify the gaps which IT can resolve especially Straight Through Processing techniques
  • Most importantly, what can go wrong where and what are the risks involved in every step of the trade life cycle ghostwriter bachelorarbeit kosten, be it credit, market, liquidity or operational risk.

The main reasons for the failure of a trade life cycle could be due to controls not adhered to or failure by any department of any of the people involved in the trade life cycle.


If you are looking for a Capital Markets course, or want to explore an Investment Banking Career, get to know more about the trade lifecycle through focused training and this blog could be a good starting point ghostwriting preise.

To know more about this, you can also visit – Imarticus Learning  Also can contact us through the Live Chat Support system or can even visit one of our training centers based in – Mumbai, Thane, Pune, Chennai, Bangalore, Hyderabad, Delhi, and Gurgaon.

Unveiling Capital Markets Explored: Navigating the Landscape of Investments and Funding

Posted on by Imarticus Learning

Capital markets allow individuals, companies, and governments to trade financial assets such as stocks, bonds, and commodities. In investment banking, the importance of capital markets is enormous as they play an important role in facilitating the flow of funds between investors and entities in need of capital. Investment banks also assist in raising funds through initial public offerings (IPOs), bond issuances, and other securities transactions, contributing to economic growth and corporate expansion.

Let us move forward with an in-depth analysis of the crucial investment banking fundamentals. We aim to offer comprehensive insights while exploring a range of relevant investment banking courses suitable for prospective candidates seeking to pursue this field.

What is Capital Market?

In investment banking, capital markets are financial markets where long-term debt and equity-backed securities are traded. These markets act as essential pathways for funds to flow between banks, investors, businesses, governments, and individuals. The main purpose of capital markets is to facilitate the transfer of wealth from savers to entities that can use it for long-term investments or projects.

Let us learn more about the structure of the capital market:

Primary Market vs. Secondary Market

The primary market, (or the new issues market), is the platform where companies publicly offer new stocks or bonds for the first time, often through an initial public offering (IPO). To facilitate these transactions, companies enlist Investment banking firms to review the securities and create comprehensive prospectuses that outline important details, including price.

Strict regulations exist in the primary market to ensure transparency and investor protection. Companies need to file statements with regulatory bodies like the Securities and Exchange Commission (SEC) and go through an approval process before becoming public. However, small investors may need more support to participate in the primary market. The primary focus is often on selling available securities quickly to meet volume requirements. 

In contrast, the secondary market consists of regulated venues, such as the New York Stock Exchange and Nasdaq, where previously issued securities are traded among investors. Issuing companies do not directly participate in secondary market transactions.

Within the secondary market, two categorisations exist auction and dealer markets. In auction markets, buyers and sellers congregate in a centralised location and publicly declare the prices at which they are willing to buy or sell securities. The New York Stock Exchange operates based on this method. On the other hand, dealer markets rely on electronic networks for trading. This is where most small investors typically participate.

To proceed with investment banking, financial modelling, it is crucial to analyse the important elements of capital marketing.

Types of Capital Markets

Types of Capital Markets

Let us learn about the different features of the capital market as well as the important types of capital markets that investors, organisations and governments deal with.

Equity Capital Markets (ECM)

Equity Capital Markets (ECM) cover a range of financial activities related to the insurance and secure trading of equity securities.

Initial Public Offerings (IPOs): Initial public offerings occur when a private company offers its shares to the public for the first time, becoming a publicly traded entity. Through an IPO, the company raises capital by selling shares to investors, who can then trade them on the secondary market.

Follow-on Offerings: These arise when an already publicly traded company issues additional shares to increase its capital. These offerings can take diverse forms, such as a seasoned equity offering (SEO) or a rights issue.

Rights Issues: The company provides current shareholders the chance to buy more shares at a lower price. This helps the company raise capital from its existing shareholders while allowing them to keep their ownership stake in the company.

Private Placements: These involve the sale of securities to a selected group of investors, usually institutional investors or accredited individuals, bypassing the general public. Private placements allow companies to raise capital without undergoing a public offering.

Equity-linked Securities: These hybrid financial instruments combine characteristics of both debt and equity. Equity-linked securities offer investors the potential for equity-like returns while possessing certain debt-like traits. For example – convertible bonds, exchangeable bonds, and warrants. 

Investment banking services work closely with companies, offering advice on the optimal timing and structure of IPOs, managing follow-on offerings, structuring rights issues, arranging private placements, and overseeing the issuance of equity-linked securities. 

Debt Capital Markets (DCM)

Debt Capital Markets (DCM) involve raising debt capital through various financial instruments and activities. Here’s an overview:

Bonds: Debt securities issued by entities to raise capital, representing a loan made by investors. Bonds have different features such as fixed or variable interest rates, varying maturity dates, and credit risk levels.

Commercial Paper: Short-term debt instruments used for meeting funding needs, typically issued at a discount by corporations, with a maturity of less than a year.

Syndicated Loans: Large loans provided by a group of lenders (syndicate) to finance projects or acquisitions. Risk and administration are shared among lenders, with loan terms structured by investment banks or financial institutions.

Convertible Bonds: Bonds that grant bondholders the option to convert them into the issuer’s common stock at a predetermined price. They offer the potential for equity participation while receiving fixed-interest payments.

High-Yield Debt (Junk Bonds): Bonds issued by companies with lower credit ratings carry higher default risks but also higher yields.

In Debt Capital Markets (DCM), investment banking firms assist companies in raising debt capital, providing advisory services, underwriting, structuring, and distributing debt securities to investors. 

Derivatives Market

Derivatives offer opportunities for risk management, speculation, and portfolio diversification. Investors, corporations, and financial institutions use them to manage exposure, protect against losses, or exploit market opportunities. However, proper investment banking training can aid in a successful transition and mitigate possible market risks. 

Options: Derivative contracts that provide the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) within a specified period. Options offer flexibility for hedging, speculation, or generating income.

Futures: Agreements to buy or sell an underlying asset at a predetermined price on a future date. Unlike options, futures contracts require both parties to fulfil the agreement. Futures are commonly used for hedging in commodities and financial markets to manage price risks.

Swaps: Contractual agreements between two parties to exchange cash flows or financial instruments based on predetermined terms. Interest rate swaps, the most common type, involve parties exchanging fixed and floating interest rate payments to manage exposure. Currency swaps and commodity swaps are other types.

Forward Contracts: Agreements between two parties to buy or sell an asset at a specified price on a future date. These contracts are customised and traded over-the-counter (OTC). Forward contracts provide flexibility in terms of contract terms and settlement.

Hedging Strategies: Using financial instruments such as options, futures, or swaps is a way to protect against potential losses caused by unfavourable price movements in an underlying asset. Hedging helps individuals or businesses reduce risks associated with changes in interest rates, exchange rates, commodity prices, or other market factors.

Foreign Exchange (Forex) Market

The Forex Market is the largest and most liquid financial market globally. Participants include banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex dealers. 

Important elements include:

Spot Market: It’s where immediate currency transactions take place at the current market price (spot rate). This is the most common form of foreign exchange trading.

Forward Market: Involves trading currencies for future delivery at a predetermined exchange rate through forward contracts. It helps manage currency risk and hedge against fluctuations.

Currency Swaps: These agreements involve exchanging interest payments and principal amounts on loans denominated in different currencies. Currency swaps help manage interest rate risk and obtain favourable borrowing terms.

Currency Options: Derivative contracts that give the holder the right, but not the obligation, to buy (call option) or sell (put option) a specific currency at a predetermined price within a specified period. Currency options provide flexibility for hedging or speculation.

Exchange Rate Risk Management: Strategies and techniques used to mitigate the impact of exchange rate fluctuations on financial transactions. This includes hedging instruments like forward contracts, currency swaps, and currency options.

Fixed Income Securities

Fixed Income Securities are investment instruments representing loans made to issuers (governments, corporations, or municipalities). They pay fixed interest over a specific period and return the principal at maturity. Mitigating risks requires proper investment banking skills.

Treasury Bonds: These are long-term fixed-income securities provided by the U.S. Department of the Treasury. They have durations of 10 to 30 years and are secure investments supported by the U.S. government.

Corporate Bonds: Debt securities issued by corporations to raise capital. Investors lend money in exchange for periodic interest payments and the return of principal at maturity. Corporate bonds carry varying levels of risk based on the issuer’s creditworthiness.

Municipal Bonds: Issued by state and local governments or agencies to fund public infrastructure projects. They can be tax-exempt and come in general obligation and revenue bond types.

Mortgage-Backed Securities: Represent ownership in a pool of residential mortgage loans. Investors receive cash flows from mortgage payments, providing exposure to the housing market.

Asset-Backed Securities: Backed by pools of assets like auto loans, credit card receivables, or student loans. Investors gain access to diversified income streams.

Difference Between Money Market and Capital Market

Here are the differences between the money market and the capital market:

Duration: Money market deals with short-term borrowing and lending, while capital market focuses on long-term investments.

Instruments: Money market involves instruments like commercial paper, while capital market includes assets like stocks and bonds.

Purpose: Money market addresses short-term liquidity needs, while capital market supports long-term funding and growth.

Risk and Return: Money market generally offers lower returns with lower risk, whereas capital market returns can be higher but with potentially higher risk.

Participants: Money market participants are often banks and financial institutions, while capital market involves investors, companies, and governments.

Market Maturity: Money market instruments have shorter maturity periods, while capital market securities have longer durations.

Regulation: Money market is closely regulated to maintain stability, while capital market has comprehensive regulations to protect investors and ensure transparency.

Example: Money market could involve trading short-term certificates of deposit, while capital market may include buying shares of a company’s stock.

Capital Market Functions and Real-world Examples

Let us learn about the important features of capital markets with the help of capital market examples.

Diversification Opportunities: Capital markets enable investors to diversify their portfolios by investing in a range of assets, like Google’s parent company Alphabet issuing bonds to raise capital.

Efficient Allocation of Resources: Companies can secure funding for growth projects, such as Amazon issuing stocks to finance expanding its distribution network.

Risk Management: Investors can hedge risks using derivatives like options contracts, exemplified when a farmer uses futures to lock in a price for their upcoming crop.

Access to Capital: Start-ups can raise funds for innovation, as seen with Uber going public to gain capital for its global expansion.

Global Connectivity: International companies can access funds globally, as demonstrated by Japanese automakers issuing bonds in the United States.

Transparency and Regulation: Capital markets are regulated, ensuring fair and transparent transactions, exemplified by the Securities and Exchange Commission overseeing companies’ financial reporting.

Long-Term Investment: Investors can engage in long-term strategies, like pension funds investing in government bonds to secure future retiree payments.

Price Efficiency: Efficient markets quickly reflect information, as seen when a company’s stock price adjusts rapidly to news about its earnings report.

Liquidity for Investors: Investors can sell shares in exchange for cash, illustrated when a retiree sells stocks to cover living expenses.

Funding Public Projects: Governments raise funds for public projects by issuing bonds, allowing citizens to invest in their country’s development.

Investment Banking in Capital Markets

Investment banking services play a prominent and vital role in the functioning of capital markets. Within investment banks, specialised divisions known as capital markets groups focus on offering a wide range of services revolving around the issuance and trading of securities in these markets. Such Investment banking skills are crucial for companies looking to raise capital and investors seeking opportunities to buy or sell securities in an efficient and regulated environment.

Here’s an overview of the components:

Underwriting Securities Offerings: Underwriting involves an investment bank assisting a company in raising capital by issuing stocks or bonds. Among the most sought investment banking careers, the underwriter commits to purchasing the securities from the issuer at a certain price and reselling them. This mitigates the risk of not selling directly to investors. The underwriter determines the offering price, assesses market demand, and ensures legal and regulatory compliance.

Pricing and Allocation Strategies: Pricing strategies determine the offering price based on market conditions, investor demand, and the issuer’s financials. Allocation strategies distribute securities fairly and efficiently, considering investor demand, regulatory requirements, and issuer preferences. Comprehensive investment banking training can help you learn the nitty-gritty of market price speculation.

Book Building Process: Underwriters determine the IPO price through book building. Institutional investors submit bids for shares and prices. The underwriter evaluates these bids to determine the final offering price. Book building is an efficient way to price securities.

Syndicate Management: In more extensive offerings, a syndicate is formed to share risk and responsibility. The lead underwriter or book runner leads the syndicate in marketing and distributing securities. Syndicate management includes structuring the offering, coordinating investor roadshows, managing the order book, and allocating shares to investors.

Capital Market Instruments

In investment banking, Capital market instruments are diverse financial instruments traded in capital markets. Here’s an overview:

Stocks: Represent ownership in a company, with potential capital appreciation and dividends. Traded on stock exchanges.

Bonds: Debt instruments issued by governments, corporations, etc. Investors lend money in exchange for interest payments and principal returns. Influenced by interest rates, credit ratings, and market conditions.

Derivatives: Financial contracts deriving value from an underlying asset or benchmark. Examples include options, futures, forwards, and swaps. Used for hedging, speculating, or gaining exposure. Can be complex and involve risk.

Mutual Funds: Investment vehicles pooling money from multiple investors, investing in a diversified portfolio managed by professionals. Offers diversification, professional management, and liquidity.

Exchange-Traded Funds (ETFs): Similar to mutual funds, providing intra-day liquidity. Can track various indexes, sectors, commodities, or investment strategies. Offers flexibility, diversification, and potentially lower costs compared to traditional funds.

Capital Market Regulation and Compliance

Capital market regulation and compliance are crucial for maintaining the integrity and stability of financial markets. Key entities include:

Securities and Exchange Commission (SEC): The SEC is responsible for regulating and enforcing federal securities laws in the US. It aims to safeguard investors, ensure fair markets, and promote capital formation.

Financial Industry Regulatory Authority (FINRA): FINRA, authorised by Congress, regulates broker-dealers in the US. It establishes conduct standards, administers licensing exams, performs exams and surveillance, and resolves investor-broker disputes.

Dodd-Frank Act: The Dodd-Frank Act was enacted following the 2008 financial crisis with the goal of improving financial stability, transparency, and accountability, while also safeguarding consumers. It introduced regulatory changes including derivatives regulation, the establishment of the Consumer Financial Protection Bureau (CFPB), and the Volcker Rule.

Basel III: Basel III refers to a set of global banking regulations developed by the Basel Committee on Banking Supervision (BCBS). The objective of Base III is to strengthen banks, enhance risk management, and promote stability in the global banking system through the implementation of stricter capital, liquidity, and leverage standards.

Market Abuse Regulations: These regulations aim to prevent market manipulation, insider trading, and other fraudulent activities. Investment banking services play a vital role in maintaining market integrity and investor confidence.

Capital Market Trends and Developments

Capital market trends and developments significantly shape the financial landscape. Key trends and developments include:

Sustainable and Green Financing: This involves financial products and services supporting eco-friendly and socially responsible initiatives. The growing focus on integrating environmental, social, and governance (ESG) factors in investment decisions drives the demand for sustainable investment opportunities. Green bonds and sustainability-linked loans are popular green financing instruments.

Fintech Innovations: Financial technology innovations are changing the financial services industry. Developments in areas such as artificial intelligence, blockchain, and digital payments are transforming different parts of capital markets, making them more efficient, accessible, and transparent.

Special Purpose Acquisition Companies (SPACs): SPACs garner substantial attention as publicly traded companies established to acquire or merge with other companies within a specified timeframe. They provide an alternative path to going public, bypassing the traditional IPO process. The SPAC market experienced some slowdown in 2022, with lower volume and underperformance of completed mergers.

Alternative Trading Systems: These platforms offer an alternative to traditional stock exchanges for securities trading. ATSs facilitate electronic trading outside of exchanges, promoting liquidity, broader access, and lower transaction costs. Buyers and sellers can connect directly through ATSs

Initial Coin Offerings (ICOs) and Cryptocurrency: Initial Coin Offerings (ICOs) are used to raise funds for projects that are based on blockchain technology. They allow the issuance and sale of digital tokens or cryptocurrencies in order to raise capital. Although ICOs have become popular in recent times, they have faced regulatory scrutiny due to concerns related to investor protection and fraudulent activities.

Alternatively, digital currencies like Bitcoin and Ethereum are continuously transforming, garnering attention from institutional investors and the establishment of regulations for their trading and safekeeping.

Conclusion

The capital markets are currently facing challenges and uncertainties, including economic slowdown, regulatory changes, and volatility. However, it’s important to acknowledge that there are opportunities for growth and investment. To navigate the capital markets effectively, individuals should adapt to regulatory changes, focus on quality investments, and stay informed about market trends.

Wandering how to get started with an investment banking course? 

Well, Imarticus Learning is here to help!

With a Certified Investment Banking Operations Professional training program, Imarticus presents you with a great opportunity to learn or level up your investment banking skills.

Wait, there’s more! How about investment banking internships with the top recruiters? 

Yes! Imarticus Learning makes sure that, along with honing up your skills with the robust investment banking course, you’re awarded an investment banking certification to make things a bit easier for your investment banking career journey. 

What are you waiting for? Get in touch!

FAQs

Is capital markets a good career?

Capital markets offer a great career for professionals as well as freshers who are looking for opportunities in the domain of investment banking.

What are the benefits of the capital markets?

Capital markets provide opportunities for organisations to raise funds for growth and expansion, while offering individuals a platform to invest and potentially earn returns on their investments.

Who controls the capital market in India?

The Securities and Exchange Board of India (SEBI) regulates and controls the capital market in India.

Pros And Cons of Derivatives Markets!

Posted on by Imarticus Learning

If you are interested in pursuing a career in finance, then you may have come across the term derivatives market. And, for anyone wanting to become a certified investment banking operations professional, learning about derivatives markets is essential.

So, let’s dive into the definition of derivatives, what advantages and disadvantages they offer, and also, what is investment banking and how is it related to them. Read on…

What are derivatives?

Derivatives refer to financial contracts whose value is associated with the value of an underlying asset. You can use these advanced financial instruments for many purposes such as getting access to markets and hedging. Except for a few derivatives such as futures and options that are traded on specific exchanges, most of them are traded over the counter, also known as OTC.

Some of the most prominent derivatives markets are Korea Exchange, CME Group (Chicago Mercantile Exchange and Chicago Board of Trade), and Eurex.

Notably, derivatives have been in the finance industry since their inception. Over time, they have become an integral part of modern markets. However, you should not confuse the derivatives market with a capital market. In a capital market, the primary securities you trade are stocks and bonds while in a derivatives market you trade futures and options.

Pros of derivatives markets

Some pros of derivatives markets are:

  • A derivatives market allows you to hedge risk exposure. For example, you can buy a derivative contract whose value goes in the opposite direction to the value of an asset you own. It would help you offset the losses.
  • You can use derivatives to find the price of the underlying asset.
  • Derivatives enhance the efficiency of financial markets. You can mimic the payoff of the assets by using the relevant derivative contracts.

Cons of derivatives markets

There are some cons of derivatives markets too. And, they are:

  • Derivatives are highly volatile and might expose you to huge losses.
  • Many experts regard them as tools of speculation because of their unpredictable behavior.
  • Even with due diligence, some OTC derivative contracts do not have a benchmark for due diligence, increasing the risk of counterparty default.

Learn more about finance

Companies are constantly on the lookout for experts who can analyze the markets and strategize their investments accordingly. Risk management in banking and investment banking allows companies to find potential growth opportunities in the markets.

Investment Banking Course with Placement in IndiaIf finance is your career choice, then you must learn what is investment banking and what risk management in banking is along with other concepts. And, the best way to go about this is to take up an investment banking course.

Pursuing a well-structured investment banking course will familiarize you with the basic and advanced concepts of finance. It will provide you with a structured curriculum so you can plan your studies properly.

Besides, an investment banker course would certify you as an expert, making it easier for you to stand out as a professional. Recruiters in the finance sector use certifications to find serious and highly skilled candidates, hence, it would accelerate your career growth substantially.

By and large, derivatives markets are significantly important and form an integral part of modern finance. And, investment bankers help companies in analyzing these markets and determine their future plans.

If you are interested in entering this sector as a professional, then you should complete an investment banker course. It will help you learn the necessary subjects while getting certified as an expert. You can check out our investment banking course details here.

What Is Portfolio Management In Stock Market?

Posted on by Imarticus Learning

 

Financial Modelling is a very crucial analytics tool and is used by literally every vertical and industry. The experts at such models are in extremely high demand and get paid fantastic sums for their advice and proficiency.

The term equity portfolio management is widely used to beat the equity market and is the implementation and planning of various methodologies, strategies, and philosophies. The ultimate aim of investment analysis is to be able to make forecasts, investment decisions, and sound predictions of the investment.

The PM advises clients based on such forecasts and ratios of project management to make investment decisions on assets whether they are stocks, other securities, or financial instruments. This clearly points out that equity analysis and its science are applied to EPM.

The Investment Philosophy:

Professional PMs have to adhere to strictly defined parameters and rigid guidelines in policy for stock selection and investment management. The PMs work for companies that deal in an investments management company and cannot follow just about any investment philosophy or general methodologies when they manage their portfolios. Portfolio management is well regulated and has to adhere to the guidelines for market capitalization.

The investment philosophy in equity portfolio management thus needs one to understand the universe of investments and select efficient instruments prudently.

Sensitivity to taxes:

Pension funds and such instruments are not subjected to taxes though they are a part of the equity portfolios of many and are considered institutional instruments by the portfolio managers. The PM has more flexibility in managing his portfolio because these non-taxable instruments use exposure to dividend incomes and short-term gains in the capital when compared to the taxable instruments.

Factors affecting the portfolio:

The main factors considered by the PMs of taxable portfolios are: 

· The holding periods of stocks.

· Tax structure and tax-lots.

· Capital losses.

· Tax selling.

· Dividend income from the portfolios.

The taxable portfolios have a low turnover rate for portfolios and are successful in comparison to the non-taxable ones having a higher turnover rate. Building and managing the portfolios to create wealth is an ongoing process that takes a long time and hence efficient portfolio management is a vital factor.

Creating the model:

Maintaining and building a portfolio model is an essential part of Equity Portfolio Management. It may take on one or many portfolios in one product of equity investments. The matching of portfolios is undertaken to compare the individual portfolio against the model of the portfolios managed and known as the benchmarked portfolio.

Then, every portfolio stock is assigned a weight in percentages by a PM to form a weighted model for the portfolio. Modifications and changes to individual portfolios happen at this stage to provide a matched mix against the weighted mix. The computerization of such portfolio models is achieved through portfolio management software tools or done using Microsoft Excel.

Achieving Efficiency:

The important factor of making profits rests on how the Portfolio manages to achieve efficiency and productivity in the portfolio. The EPM achieves excellent efficiency by running all portfolios according to the standards set and in a similar manner. Rather than expert knowledge in 100 to 200 stocks the EPM needs to know all about 30 to 40 stocks in the portfolio.

These 30 to 40 stocks are used in the model and other portfolios are weighted against these by weight modifications. With equity markets constantly fluctuating the fall and rise of the stocks are necessarily changed by the EPM over the passage of time. This measure reflects the investment potential and decisions of the portfolio.

Why learn at Imarticus:

The equity portfolio management degree at Imarticus Learning is attractive because they offer the latest in technology and skills while training you in a very short period. They use the latest practical learning tools of using project work, assignments, sufficient assignments, tests, hands-on practice and bootcamps to reinforce your learning. They integrate modules in resume writing, mock interviews, soft-skill development, and personality development while offering convenient timings and modes for professionals and career makers. Their wide range of subjects offered is specific and need-based depending on the training skills required for making a career in financial analysis.

Conclusion:

EPM or equity portfolio management involves modeling the portfolio in an efficient manner whereby evaluation of key stocks can be assessed with the key metrics of stocks in a group of such stocks. It relies on equity analysis and portfolio management. The weights allocated to these stocks are adjusted in the models according to the rise and fall in the stock values to effectively read and optimize the return of all stocks/portfolio stocks in the group.

You can learn EPM by doing a financial modeling course at Imarticus Learning where statisticians and modeling experts thrive.

Corona Virus and Impact on Capital Markets!

Posted on by Imarticus Learning

The capital market involves investments for the long term in an entity’s capital constituents i.e., equity instruments and debt instruments. The entity uses these sources of funds to produce goods and services.

The COVID 19 disease, on the other hand, involves choking breaths, killing people, and adversely impacting investor confidence in capital market financial instruments. Consequently, COVID 19 has obstructed new investments and affected existing long-term investments. A system that cannot breathe cannot generate energy and in the absence of energy, all else fails.  Frozen sales activity due to increasing uncertainty is a boost for the savings driven economy, while consumption has reduced globally – from essential commodities like oil to trade of everyday requirements thereby reducing spending. Only time will tell if this is a working capital glitch which can be resolved or if there is much more to this than meets the eye.

Though the COVID 19 seems to be an Atlas that bears the brunt for everything wrong happening to the capital markets, the ever prevalent disconnect between entities that produce basic necessities like food, clothing, shelter, health and education and the financial system is just as much responsible for the ongoing misery. This disconnect has let COVID 19 seep through the openings and crumble supply chains due to social distancing, reduced activities, and the flow of data and information in our generally fast-paced era. On the other hand, consumption has reduced worldwide – from essential commodities like oil to trade of everyday requirements.

Inversion of yield curves is a primary indicator of a negative outlook to long term yields from investment in debt instruments. However, most other capital market representations, including the stock markets, in the current scenario are just as imperfect as the information available to them.

In light of the current scenario, cash, in line with the definition of financial assets (IFRS) remains the most preferred financial asset. The consequent liquidity crises in the investment circuit thus, due to a preference for cash, severe short-term losses, and uncertainty, have affected long term investments. New long-term investments have been blocked, and existing long-term investments are being sold off to recover for the losses incurred in short term trades.

The uncertainty due to the newness of the situation to the present market gurus leaves prediction of outcomes merely a fool’s errand. In the absence of reliability in the current investment system, hoping for homeostasis; while we prepare for a further cut in consumer spending to hoard cash seems to be the only certainty.

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What is The Structure Of The Indian Capital Market?

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The modern-day financial system is established on twin pillars, the first one is called the capital market and the second one is known as the money market. Both the markets work in conjunction to provide a stable financial system in the country. One alone is inadequate and inefficient to fulfill the growing demands of the dynamic economy in the era of globalization and financial innovations.

The major difference between these two is the duration of the financial instruments involved. The money market serves the purpose of short term borrowing and lending, the instruments traded have a maturity of one year or less usually. The capital market, on the other hand, deals with instruments having long term duration, usually long term securities which have a significant influence on the capital.

Having in-depth knowledge about the structure of the Indian Capital Market will add a lot to your Capital Market training programs. Let’s dive deeper into what exactly is the capital market and what kinds of securities are traded using the capital market.

 Understanding the Indian capital market

The capital market is that branch within the financial system that deals with long-term securities and facilitates the trading of the same. The securities commonly traded in this market comprise of stocks bonds etc. The trading process takes place electronically with the help of an exchange platform using intermediaries like financial brokers who guides and navigates through the requirements of the stock exchanges.

The capital market is further classified into two categories, the primary capital market, and the secondary capital market. The primary capital market deals with securities that are issued for the first time in the market like the Initial Public Offerings (IPOs) from companies going public. Debt and the right issues from companies are also facilitated in the primary market.

In the secondary market, investors buy and sell the shares or other securities among themselves and the company that issued the same is not directly involved. The amount received from the sale of securities in the primary market is added to the company’s capital or income but the sale and purchase of securities in the secondary market are beneficial to the investors. Broadly the secondary market has two categories the secondary market for corporate and financial intermediaries & for public sector bonds and government securities.

The financial instruments mainly traded in the Indian capital market include equities, derivatives, and debt instruments. The equity market instruments comprise of common stocks, exchange-traded funds, IPOs, etc. Derivatives include futures contract, put option and call option. Currency derivatives and NSE bond futures are some of the other prominent derivate instruments. The debt instruments include government-backed securities and corporate bonds.

All the financial transactions in the capital market are done through the medium of exchange. An exchange can be understood as a platform that provides a medium to buy and sell shares electronically, other services include facilitating issue and redemption of securities. At present, there are 23 SEBI approved stock exchanges in the country, the Bombay Stock Exchange (BSE) & National Stock Exchange (NSE) are the two biggest stock exchanges in India.

Now the day the functioning of the capital market is very cumbersome and needs a body to regulate and oversee its conduct to maintain standard ethical practices in the industry. The body that regulates the capital market in India is known as the Security and Exchange Board of India (SEBI), established in 1988 by the government of India.

Some of the significant functions carried out by SEBI include monitoring and regulating the securities market of India and protecting the interest of the investors by curbing out mal-practices and setting laws and regulations that act as legal guidelines for the industry.

The Importance of Financial Risk Management

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Managing financial risk is an essential component of any successful business. Specialized financial risk management teams are hired to guide a company through the financial market’s turbulent waters and create strategies to avoid losses and maximize profits as much as possible. Although seemingly scientific, the process is convoluted and never exact, therefore requirement an excellent amount of expertise in financial markets.

Firstly, what is financial risk management training? It’s the approach used to reduce adverse financial effects that emerge from risks and uncertainties. In simpler terms, it’s the process of putting in place strategies that work to protect money when unforeseen events occur in a business, as they tend to do. There are generally four types of risk today:

  • Market risk
  • Liquidity risk
  • Operation risk
  • Credit risk

These are almost never mutually exclusive but often overlap in scenarios, which makes financial risk management planning that much more complex and important.

Here are a few reasons why financial risk management is important:

Reduces financial disasters

Every business seeks an upward spike in the revenue and profits graph, no matter what industry they belong to. However, every business has a set of risks they are likely to face– planning for these makes the firm less likely to fall prey to losses as an effect of these risks. Financial risk management in these scenarios could range from the prevention of unsound investments to putting out products that are unlikely to sell or be profitable.

Predicts bountiful opportunities

In tandem with reducing financial disasters, financial risk management also aims to identify what investments, plans, and strategies are going to be most profitable for a business. This enables firms to act quickly and wisely to capitalize on benefits in good time– naturally, any profitable investment will also benefit stakeholders. No matter how quick or drawn out the decision maybe, if it’s financial in nature, the risk management team was sure to have been involved.

Keeps ahead of the competition

Competition is everything in the market, and one financial stumble can cost a business dearly. A business with a strong, well-formulated financial risk management plan is accounting for a multi-player field that is not always level. It’s also preparing in advance for any stumbling blocks to avoid losing pace and allowing competitors to get ahead.

Assesses internal and external risks

Risks can be internal or external. Some examples of external risks are market fluctuations, political unsettlement, inflation and deflation, and interest rates among others. Internal risks include security breaches, non-compliance, and information leaks. In business, internal risks can largely be controlled by way of strategies and implementations– however, in that sense, external risks can’t be controlled and are therefore harder to recover from. It’s always better to prepare for this uncertainty with a bullet-proof game plan that protects finances come what may.

Conclusion

In the past few years, several companies have introduced strong risk management teams to protect finances and prevent losses to the company through untoward incidents or ill-thought-out strategies. Therefore, risk management jobs are always in demand– it’s a field that keeps on growing, due to its very dynamic nature and the pushes and pulls of external risks that are seemingly unrelated but very influential.

Financial risk management plans function as the GPS of a company, guiding them towards their future financial objectives while taking the fastest, smoothest route.

How Do I Become a Risk Management Consultant?

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What is Risk management?

Risk management is the process of analyzing risks related to finances involved in a company. It also includes micro-managing other risks associated with any business concern which might impact the overall health of the company. The business environment is uncertain hence understanding how a business will do in the future is also uncertain. Therefore, efficient risk management also means efficient forecasting of the future results and the factors which might affect the company in multiple ways. With good management of risks, loss by the way of uncertainties can be minimized to a very large extent.
Risk management is quite challenging as the risks which have not been encountered by the company yet have to predict and strategies have to be formulated to come out of such a situation safe and sound. Therefore, these activities cannot be performed by regular individuals but by those who have an area-specific knowledge and are also well versed with the tools of predicting the unseen and managing the risks associated with it efficiently and effectively.

Who can become a risk manager?

A risk manager is someone who has in-depth knowledge of how to manage the unforeseen risks associated with any particular business. Various risk management courses are available in the market which will provide a quantitative as well as a qualitative approach of dealing with companies and helping them out in predicting the future and manage the multiple risks associated with it.
People who have the mind for analyzing the shortfalls and coming up with alternative solutions are the right people for this job. It requires both an analytical as well as a creative bent of mind to become a risk manager as it involves analyzing the problem and then coming up with various new and innovative techniques to tackle and come out of those problems.

How can someone become a risk management consultant?

Risk consultants have expertise in finance, business, analytics, mathematics and all other factors which are the primary indicators of the general health and functioning of any business entity. These professionals analyze and predict the occurrence of a mishap and come up with strategies to overcome them. Such risks include losses due to policy changes, death of a member from the higher management, loss of property, a slowdown of revenues, closure of any revenue channel, etc. Various consultants have different specialization in different sectors of the economy like healthcare, pharmaceuticals, industrial goods, commercial goods, etc.
The first step of becoming a Risk Management Consultant is to get a bachelor’s degree. Only a graduate can keep his foot forward if he has an interest in taking the path of a risk management consultant. Thereafter, the individual must go for an entry-level job which should be closely related to risk management. Usually, these individuals start as finance trainees, insurance trainees or something similar. This job will help you in understanding the basics of the corporate world hence prepping you up for your career in risk management.
With more and more exposure, trainees are made to analyze and do specific researches which in turn broadens their perspectives. The next step is to become an Associate Actuary. One can do this by gaining certification through CAS or SOA. This degree will grant a professional status to risk management consultants. To become eligible for this certification, one has to pass in a series of examinations and participate in various seminars. After the above certification, one can opt for fellowship certification. This requires you to work for another 2-3 years. Along with this, an individual will have to get himself registered with federal government agencies. After all this, the individual is all set for his career in risk management. He can operate independently or as a corporate risk management consultant.

What Are The Types of Trade Settlement in The Trade Life Cycle?

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Understanding Trade Settlement

The evolution of finance and commerce as a whole has pushed the world economies to a new high. With the advent of trading of financial instruments and multiplier effect into action, the monetary growth has been multiple folds over the past few decades.

Let’s get deeper into what exactly is trade settlement and how does it function. Trade settlement is a transaction method wherein the securities in trade are transferred into the buyer’s account and the monetary value of the security is deposited into the seller’s account post a trade execution.

The securities traded are financial like bonds, stock futures, or other financial instruments of value. The date when an order is placed is known as trade day whereas the transferring of security and cash takes place on the settlement day.

The trade settlement in the trade life cycle process is a part of a bigger whole which we call the trade settlement period.

The trade settlement period incorporates the whole time taken to complete the trade, starting from execution to settlement of the trade.

Types of Trade Settlement 

During trading of financial securities, the time period for settlement of trades, trade capture is set as per the contract. The general time frame differs as per the types of securities. Equity securities are settled on T + 2 days, here ‘T’ is the trade date. Other securities such as commodities, currencies, or derivatives are traded at the mark to market, the settlement for a mark to market is at T + 2 days.

The classification of Trade settlement can be done into 3 types:

  • Normal/ Rolling Settlement
  • Trade-to-Trade Settlement
  • Auction

Rolling Settlement

In this type of trade settlement, securities are settled on successive dates based on the settlement period in the contract and the day when the trade was executed. So let’s take a trade contract period with T + 2 days settlement time, here if a trade is placed on Monday and another trade is placed on Tuesday, the trade on Monday will be settled on Wednesday and the trade executed on Tuesday will be settled on Thursday (successively).

This is different from the account settlement method wherein the trade executed within a given time period is all settled at once.

Trade-to-Trade Settlement

In the Asset allocation, Trade to Trade Settlement method, intraday trading in prohibited for securities falling in this segment.

 

In this type of settlement method, the trader is required to accept the delivery of the security when bought and provide the monetary value, while selling the trader has to deliver the securities and the monetary value of the same will be provided to the trader for the securities traded. In short, shares are traded only for delivery.

Auction

Any trade involves at least two parties to the transaction, in the trading of financial securities, on one side we have the buyer of the security on the other side we have the seller of the financial security. The auction takes place when the selling party of the transaction or trade fails to deliver within the given time period on the agreement of selling the security for the said or agreed upon the monetary value of the security. It’s a kind of penalty for the investor’s carelessness while trading.

In this case of failure the broker of the selling party will try to purchase the security in a buy-in-auction market, the sum of the auction price along with the penalty and brokerage charges has to be paid by the defaulter (the selling party). The settlement of the action is done on T+3 days given the broker tries and purchases the share in the auction market on T + 2 days.