Market Dynamics - Tiger Corp's case

Extract

[...] When trading on the markets is quiet, the order book "unloads". The number of buyers and sellers naturally decreases, and supply and demand diverge. As a result, there are fewer transactions where the price suits both parties. - Due to order-matching algorithms, i.e. orders are combined in a transaction. - When there is too much order flow in the market, matching algorithms can produce atypical results under extreme events, including spread widening. This can happen when important news is announced, when important levels are broken, when the price falls into stop-loss accumulation. [...]

[...] B In asset trading, the sell price is one of two quoted prices, the other being the buy price. Part 2 Jack (the customer) anticipates, in the wake of the Covid health crisis, a drop in Tiger Corp's earnings, greater than the market's projections. He asks Marie (his JP Morgan equity representative) to sell 500 shares of Tiger Corp in three months' time using a futures contract. The more liquid a market is, the easier, faster and cheaper it is to make large purchases and sales. [...]

[...] In other words, it is generally not advisable to trade on the financial markets in summer, as market liquidity diminishes during the vacation period. Summer (and the Christmas vacations) are considered special periods on the financial markets. The summer period reduces market liquidity and, as a result, volatility increases. Logically, the activity of large institutional investors may be limited in summer as people go on vacation, so trading volumes may be lower. August is considered to be the month when vacations and lower market activity are most evident. But if markets are less liquid, the bid-ask spread will be wider. [...]

[...] Market Dynamics - Tiger Corp's case Part 1 - Multiple Choice questions Q1. A The bid and ask correspond to the price at which a market maker wants respectively to buy or sell a financial asset, such as a security (stock), a derivative (futures, swap, option), a currency, a raw material or a crypto-currency (bitcoin, ethereum . Bid and ask examples are provided for the following FOREX currency pairs. Source: Investing.com (July 13, 2023) Q2. E A widening of supply and demand appears due to an increase of the difference between supply and demand prices. [...]