Finance is what funds the economy and corporations behind the scenes. The easiest way to understand current opinions of what is happening in the world is by being able to read the stock markets.
In economic models finance (and hence money/banks) are often not included, which is insane given that they are the fundamental drivers of the economy. They usually only focus on capitalists and workers.
A good website for financial and stockmarket news is Zerohedge which issues its own news as well as publishing noteworthy posts from blogs.
Financial assets are far too liquid when compared with illiquid assets (takes a few second to rearrange shares, months to build a factory) this means investors are interested in short term gain. The transactions should not be as slow as illiquid assets otherwise they are redundant, but they should not be as fast as they now are.
The value of stocks are not based on what they are actually worth, but on what people think they are actually worth. Therefore if you wish to invest, you need to have a good understanding of trends in human behaviour in relation to various types of news announcements and movements in price.
With the invention of globalised financial and economic system, warfare need not be completely physical any more. Economies can collapse if sanctions are placed on assets, if trade is restricted, if investors pull out of the stocks of the country etc. So if you see physical warfare, it may be necessary to check if economic warfare has occurred. For example, prior to Japan attacking Pearl Harbour, the US and its allies applied severe trade sanctions particularly on oil to Japan as they were worried Japan was becoming too powerful. Thus Japan reacted.
A more covert form of economic warfare is carried out by the IMF and World Bank where they loan struggling countries money, on the condition that it adheres to strict policies of deregulation. This usually causes the chosen country’s economy to collapse, and allows large US corporations and hedgefunds to buy all the public services at a very cheap price.
Short selling is where you sell a security that is not owned by you (or that you have borrowed), on the belief that the price of the security will decrease allowing you to buy it back at a cheaper price. It is generally considered amongst the public as done in bad taste as it bets on business doing worse, and hence encourages the stock-market to view it as doing worse. It is illegal in some countries, but, in the countries where it is, legal it is common practice.
It is rather ironic that government treasuries are actually a huge short seller. As they print money, sell it to the public, then, if necessary, buy it back later when it is cheaper due to inflation.
Derivatives, also known as financial weapons of mass destruction, are contracts that derive their value from the performance of an underlying entity such as an asset, an index or an interest rate. They are one of the tree main types of financial instruments; the others are stocks and debt.
There are various types of derivatives:
- Collateralised Debt Obligations – These are largely responsible for the 2008 financial crisis
- Credit Default Swaps
High frequency trading is a type of trading that is done by computer algorithms at high speed, high turnover rates and high order-to-trade ratios that leverages high-frequency financial data. More than 80% of the trading volume that occurs in the US is from HFT. It is known for causing ‘flash crashes’ as it creates significant volatility. HFT firms tend to use the fastest fibre-optic cables available in order to increase their speed advantage over their competitors. The legislation surrounding the regulation of HFT is severely lacking, allowing firms to take advantage of the financial system.
It can also be used for insider trading as shown below:
“On September 24, 2013, it was revealed that some traders are under investigation for possible news leak and insider trading. Right after the Federal Reserve announced its newest decision, trades were registered in the Chicago futures market within two milliseconds. However, the news was released to the public in Washington D.C. at exactly 2:00 pm calibrated by atomic clock, and takes seven milliseconds to reach Chicago at the speed of light. Contrary to claims by high-frequency trader Virtu Financial, anything faster is not physically possible. It was concluded the high-speed traders in question had to receive the news under embargo from proprietary feed servers in Chicago that were pre-loaded with the Fed’s announcement.”
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