ABSTRACT

This chapter examines how shares are traded, how the market is created and how an investor may make decisions as to whether to buy, sell or continue to hold stocks. The London Stock Exchange (LSE) provides a market for the trading of shares. The market maker will offer a buying and a selling price. The Stock Exchange Electronic Trading Service (SETS) computer system informs the market of details of all orders and matches buyers and sellers automatically, cutting out the need for a market maker. Under the dual capacity system, jobbers acted as market makers, merely dealing with other jobbers and brokers. Contracts for difference (CFD) are becoming popular as an alternative to actual share trading as they allow the maximum amount of money to be made from the share price movement and avoid stamp duty. The present value of a future receipt is computed by reference to 'the time value of money'.