Discovering America!

Over the last ten years, Russians' keen interest in financial markets has become truly national in scope. Managers rushing to work in the morning watch RBC TV with a cup of coffee, young people in cafes discuss charts of currency pairs on their PDAs, in general "Forex, pounds, spreads, victories in the struggle for capital".

The years 2006 and 2007 were for depositors in Mutual Funds in gold (provided that they repaid them in time). However, the driver of everything that is happening - the US stock market - remains in the shadow. Brief comments on the changes in DOW and S&P500 - and that's all you can hear from Russian analysts. But it is the one that sets the tone for all other markets! Traders of Russian stocks and futures closely follow "America" because any movement "there" causes correlation "here".

In this series of articles I will try to "Open America" for you. I will try to remove the halo of mystery and complexity from it, and show you how many opportunities the US stock market offers to a trader or investor.

U.S. stock market structure

Итак, структура фондового рынка США — это три крупнейших площадки: NYSE (New York Stock Exchange), NASDAQ (National Association of Securities Dealers and Quotations) and AMEX (American Stock Exchange).

 

Regulatory bodiesSEC (U.S. Securities and Exchange Commission), the Central Bank or FED Reserve and the Treasury Department, as well as self-regulatory organizations such as NASD.

 

NYSE

NYSE Euronext — крупнейшая биржа в мире по биржевому обороту (около $60 млрд. в день) и старейшая в США, на ней обращается около 2700 акций с суммарной капитализацией компаний $21 трлн. (для сравнения, капитализация Российского фондового рынка $850 млрд).

Trading on the NYSE, unlike NASDAQ, is conducted on the principle of auction. Ключевое лицо в процессе торгов — specialist, который ведет торги по одной или нескольким акциям (обычно до четырех). Специалист работает в одной из семи фирм с крупным капиталом. Задача специалиста — вести торги, определять цену, по которой открывается рынок акции с утра, обеспечивать ликвидный и стабильный рынок. Если временно возникает дисбаланс спроса и предложения, то специалист обязан использовать капитал фирмы и занять противоположную сторону, чтобы сгладить возможные резкие колебания цен. Именно благодаря этому на рынке акций наблюдается техничность и плавность хода цен. А это очень важно для нас – трейдеров.

 

NASDAQ

NASDAQ OMX Group — крупнейшая электронная биржа, специализирующаяся на акциях высокотехнологичных компаний (производство электроники, программного обеспечения, связь, биотехнологии) и других отраслей. Наряду с NYSE и AMEX, является подразделением NASD. На NASDAQ торгуется около 3200 компаний с суммарной капитализацией $4 трлн. В средний день оборот рынка составляет 1,8 млрд. акций.

NASDAQ is a non-centralized exchange and by its structure is an electronic network connecting traders through ECN (Electronic Communication Network). Instead of a single specialist, quotes are maintained by many large firms of market makers. Market-makers are obliged to put out two-sided quotes, they earn on the spread and compete with each other to help narrow the spread. On average, 14 market makers work with each stock, and in "heavy" stocks such as MSFT (Microsoft), GOOG (Google), AAPL (Apple) their number can reach 25.

 

AMEX

AMEX — специализируется на торговле ETF и HOLDRS, также благодаря более либеральным требованиям по сравнению с NYSE и NASDAQ, на ней обращаются акции компаний с меньшей капитализацией.

 

ETF (Exchange Traded Funds) — фактически ETF является новым видом ценных бумаг, который можно определить как депозитарный сертификат на портфель акций, поскольку владение этой ценной бумагой равнозначно владению портфелю акций. Портфель биржевого фонда привязывается к какому-либо индексу, отражающему динамику отдельного сектора или рынка в целом, или к определенному портфелю акций. Для частного инвестора ETF интересны в качестве возможности долгосрочного вложения в определенную отрасль или в экономику целой страны при отсутствии рисков, с которыми всегда связаны вложения в конкретные предприятия.

Thus, there are: "gold", "oil", "Chinese", "Indian", "Brazilian" and many other ETFs for a portfolio of stocks of the whole sector or a single market. There are also currency ETFs for the euro, pound and other currencies....

All of these venues are being addressed ADR — Американская депозитарная расписка. По сути, это ценные бумаги компаний, находящихся за пределами США, которые при этом могут торговаться на своих «родных» биржах.

A number of Russian companies are traded on the NYSE: VIP (Vimpeltelcom), MBT (MTS), WBD (Wimm-Bill-Dan), MTL (Mechel) and others.

NYSE and AMEX stock tickers have a one, two or three letter designation. For example: А-Alligent Tech, С-Citigroup, BA-Boeing, MA - Master Card, POT - Potash.

NASDAQ tickers have four or more letters: RIMM - Research in Motion, YHOO - Yahoo!, BIDU - Baidu.

All three sites open at 9.30 a.m. U.S. Eastern Time (17.30 Moscow time) and work until 16.00 (00.00 Moscow time). At that, before the opening the so-called Pre-market or pre-session trading is available, where it is possible to place preliminary orders and trade the paper before the opening. But the "pre-market" is characterized by the lack of liquidity. There is also Post-market, which is similar to Pre-market and starts in the paper after the close. But pre-market and post-market are not available in all stocks.

Thus, the NYSE, NASDAQ and AMEX provide tremendous opportunities to trade with any style and capital! You can always find technical securities with low entry risk and incredible moves. Many stocks in their movements make hundreds and some even thousands of percent in a short period of time (AIG in March 2009 went from $10 to $40 in 4 days, in August repeated the "flight" from $14 to $55; DTG in April 2009 was worth $2, in October updated $27.50, and there are many such examples). Intraday moves can be 10-50% from the opening price. Where else will you find opportunities like this? Nowhere...

Fig. 1. Dynamics of AIG movement.

Figure 2. DTG motion dynamics.

At the same time, you are full-fledged participants in price formation. Your orders "create the market", you are not pawns in the game of numerous intermediaries, but full-fledged market makers market.

This is where everyone will find their niche. Day traders will find technical stocks and will be able to make money every day; position traders will be amazed by the swings of their securities, and investors can be calm for their capital, as the U.S. is less exposed to political and governmental risks, although they are present in any market, it should be taken into account.

 

Trading technology

NYSE и AMEX являются централизованными биржами, имеют свое здание и торговый пол (trading floor). NASDAQ сродни Forex — сугубо электронная система, но в отличие от FX регулируема.

На NYSE и AMEX самые крупные блоки проходят через «специалистов» — отдельного человека, который «ведет» акцию. Он сводит крупные ордера от Floor – брокеров. И обеспечивает ликвидность и плавность хода цены. На NASDAQ за этим следят маркет-мейкеры. Но их обязанности не так строги, как у специалиста, и это более «свободный» на исполнения ордеров рынок. Отсюда и резкие колебания курсов акций NASDAQ.

A private trader or investor has 2 ways to transact in a stock:

1. Independently through the trading terminal of direct (DAT) or indirect access.

2. give an order to your broker, who will send this block to a specialist or a market-maker through his channels.

Let's consider the first method, as the second one took place in the recent past and more and more often traders and investors resort to placing their orders independently.

 

Direct Access Terminal or DAT (Direct Access Trading)

What is direct access? It is an opportunity to send your order directly to a specialist, market maker and any counterparty on the exchange, bypassing intermediaries. In this case you can see the "internal market" and its "depth" (the so-called "glass"). In the Market Maker window you can see all buy and sell orders, their total volume on the tier and the last transactions - prints. Thus you have full information about the traded instrument. Popular CFDs and FX do not have such information and are limited to a chart. And, as you know, the chart is a reflection of the "internal market", a derivative of the "tape of prints", and such information is simply irreplaceable when analyzing the instrument. Standard terminals have windows of orders, positions, etc.

Figure 3. DAT image.

 

Stock charts

Most direct access terminals have built-in graphics. Some do not have them. They are removed in order not to load the system, where the speed of order entry is crucial. As a rule, these are terminals for professional day traders.

There are separate providers of US stock market data: Interactive Data, CQG, Bloomberg and others.

Bloomberg and eSignal have become the standard on Wall Street. Fast data on any stock from any stock exchange in the world is available to their subscribers.

 

News and fundamental data on companies

At first contact with the stock market, Russians are shocked by the huge amount of information about stocks, and even in English. Or they simply do not know where to get this information.

Below I'll give you a few tools for finding and analyzing U.S. stocks:

1. Scanner - allows you to select from a vast list of stocks only by specified parameters: price, volume, capitalization, yield, sector or technical filters: leaders of growth/decline, leaders by volume, etc. There are a lot of scanners, but I want to emphasize two: Investertech.com - the best, in my opinion, scanner. Especially suitable for day traders. MSN.com - a scanner focused on fundamental parameters.
2. source of fundamental news by issuer: Bloomberg.com + Bloomberg TV, Finance.Yahoo.com, Finance.Yahoo.com, Briefing.com, CNBC TV, Earnings.com
3. terminal for order entry (with open account with broker), Chart charts, scanner and stock news.

That's all you need! Nothing complicated!