An introduction to trading for RMIT Vietnam Finance Club.

1. Tai Tran
15 November 2012

2. Agenda
• Market structure
• Trading
– Trading techniques
– Strategy
• How to pick good stocks
– Academic
– Industry practice
– Portfolio management
• Case study
• Q&A

3. Market Structure

4. The typical flow of order
Stock Stock
Brokerage Stock Exchange Brokerage
Firm Firm

5. How to pick a good stock broker
• Track record
• Network
• Trading system
• The company, not the broker
• A practice for your due diligence skill

6. Stock Exchanges

7. Investor Trader
More focused on long-term goals More focused on short-term profits
Use different techniques including shorts
Usually buy and hold
& derivatives
Usually want to participate in corporate Most likely aim at profits from stock price
governance movement

8. Trading

9. Trading Orders
Limit Order B/S Ticker Price
Matching priority
• Price
• Time
Market Order B/S Ticker
Matching priority
Why do
• Time
people
Order racing submit MO?

10. Trading costs
•Brokerage commission
Explicit
•Exchange fee
costs
•Tax
•Bid-offer spread
Implicit
•Market impact
costs
•Opportunity cost

11. Out of ninety-
thousand stocks
on the New
York Stock
Exchange
How to pick good stocks

12. Academic
• From Investment course
• Multivariate models

13. Factors
Correlation with index portfolio
Dividend yield
Momentum
Size Book to market ratio
Credit trustworthy
Asset growth
Leverage
Product life cycle
Industry growth
Price on earning
Quality of information disclosure
Cash ratio

14. Fundamental Analysis
• Look into the firm's financial statement,
management, future business prospects
• Analyze macroeconomics, industry, competitors
• Forecast future stock price using KPI as input

15. Technical Analysis
• Believes that stock prices move in patterns. Try to
identify the pattern in near future. Primarily
concern price & volume.

16. High-frequency trading
• Use sophisticated trade automation. Trade on rapid
basis.
• Monitors the market for unusual movement, then
captures the opportunities.
• Best for arbitrage.

17. Case study

18. Now, pick a
stock and we'll
analyze
together

20. Bibliography
• Bodie, Kane, Marcus, 'Investments', 9e, McGrawHill, 2011
• Frino, Segara, 'Trade Execution, Arbitrage and Dealing in Australia', Pearson
Prentice Hall, Sydney, Australia, 2008
• Lewis, 'The Big Short: Inside the Doomsday Machine', W. W. Norton &
Company, 2011
• Taleb, 'Fooled by Randomness: The Hidden Role of Chance in Life and in the
Markets', Random House, 2008
• Holtahusen, R., Leftwich, R., and D. Mayers, 1987, The effect of large block
transactions on security prices: A Cross sectional analysis , Journal of
Financial Economics 26, 237-267
• Chan, L.K.C., and J. Lakonishok, 1993, Institutional Trades and Stock Price
Behaviour, Journal of Financial Economics 33, 173-199
• Admati, A.R., and P.Pfleiderer, 1988, A theory of intraday patterns: Volume
and price variability, Review of Financial Studies 1, 3-40
• Chan, K.C., W.G. Christie and P.H. Schultz, 1995, Market Structure and
Intraday Pattern of bid Ask Spreads for NASDAQ Securities, Journal of
Business 68, 35-60