Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
The future of ECNs is questionable. If the exchanges decide to extend trading hours themselves, will there still be a need for ECNs? Only time will tell. Should you engage in after-hours trading? There is no strong argument for or against it in my opinion. But I still prefer market-hours trading where the volumes are high, spreads are low, and my broker can shop around for best prices. One last point to note about after-hours prices is that at market open, all stocks open from where they left off the previous trading day, not where the ECN prices are indicating. In most instances stock prices (at least initially) rush to catch up with the after-hours prices, however, there is no guarantee that they will do so. After-hours prices are only an indication of where a certain stock may go to when the market opens.
The Indices And Benchmark Index
By tradition each type of financial market usually has a benchmark to gauge its relative strength. In the bonds chapter I talked about the long bond (the T-bond) as a benchmark for the bond market. The commodities market has the CRB benchmark. The stock market also has its own benchmark, or more correctly, benchmarks.
Suppose you wanted to design a benchmark for the stock market. How would you go about doing that? Going back to your early mathematics, the best possible way would be to take the price of all the stocks, add them up, and divide by the number of stocks to arrive at an average. Of course such average would be too simplistic and it might not correctly reflect the true performance of the stock market, not to mention that it would be too burdensome. For one, you would have to account for the many stocks entering and leaving the market. Also would you give the more popular stocks a higher weight than the less known ones? Obviously such a simplistic average would render a lopsided result of the market, where a few trivial stocks could easily …
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