European Central Bank (ECB) defines financial stability1 as ”a condition in which the financial system – which comprises financial intermediaries, markets and market infrastructures – can withstand shocks and unravel financial imbalances. This mitigates the prospect of disruptions in the financial intermediation process that are severe enough to impact real economic activity adversely.” Practically speaking, stability is a balance among the agents participating in the financial environment: market par- ticipants weave relationships, creating dependencies and interconnec- tions. The risks and vulnerabilities affecting one agent can impact many others, generating a cascade effect that propagates and might throw the system out of balance. Hence it is essential to identify all the potential sources of risk in the spirit that if we can recognize the form and assess the severity, we can cope with specific risks and prevent the system from unbalancing.
Item Type: | IMT PhD Thesis |
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Identification Number: | https://doi.org/10.13118/imtlucca/e-theses/379 |
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Date Deposited: | 04 Jul 2023 08:43 |
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There are two types of financial stability. One relates with our personal finances. The other has a broader, wider implication and concerns businesses and countries.
In this article, let’s discuss why financial stability is important in life. I mean personal financial stability.
Let me put it this way.
Have you ever gone broke and didn’t have money to afford a meal? Or fallen short of cash when you needed it the most? I’ve seen people go through these real life scenarios. And trust me, they are a living nightmares.
An old proverb says money can’t buy you happiness. Very true. I’ll agree with this. But money can definitely keep away unhappiness. That’s the main reason why financial stability is important in life.
American author, financial advisor and TV host Susan (Suze) Orman says: “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”
These ‘what-ifs’ that Suze speaks of are various regrets in life that can arise due to financial instability. Therefore, to understand financial stability, let’s first understand what’s financial instability?
In my humble yet honest opinion, financial instability is not just temporary money shortage. Financial instability means not having proper income for any reason. This translates as no savings, no investments and possibly no source to get money or other resources when absolutely necessary.
Financial instability also means dependence upon others for daily, basic needs and colossal loans and credit due to spending beyond limit. To me, financial instability also means a general unwillingness to rise out of such situation.
There could be lot many definitions, but I prefer to stick with my own.
Now, let’s see why financial stability is important in life.
Financial stability doesn’t automatically mean a stress-free life or one without problems. Stress and problems are integral part of our life. Hence, financial stability has several different features.
1. Financial Stability Buys Respect
Whether or not we agree, but the common tendency is to avoid people that are always asking for money or stuff or narrating their problems due to lack of money. We avoid such people. Regardless of how qualified or good natured they are, the tendency is to shun such people.
Now assume you are the person asking for money or things and complaining about hardships. Would you get any respect from people including close relatives? Definitely not. The modern society respects only people that are financially stable. Even a shady character loaded with money gets respect. Hence, financial stability buys respect.
2. Physical & Mental Wellbeing
Another reason why financial stability is important to life is for life itself. Generally, people that are financially unstable suffer from stress and emotional disorders. Over a period of time, these affect the body. A financially unstable person can suffer from aches, pains, frequent fevers and infections. That a strong link between physical and mental health exists is known since ancient times.
Financial stability therefore ensures you don’t fall victim to money related stress and mental disorders. Money affords you healthy food and if necessary, medical care . Even financially strong people experience stress, but for different reasons. And this stress doesn’t necessarily cause mental illness.
3. Financial Stability & Family
Wealthy couples get along very well. That’s what we’re led to believe all along. And that’s sheer rubbish. A survey by a leading economic daily finds, less than 30 percent of couples trust their partners on money matters. Another 26 percent of the sample population or respondents say, their partners are secretive about personal finances. This in turn leads to quarrels in marriage.
Why? Because both partners fear about financial stability. The survey finds that overspending by a partner and neglecting investments is the main reason for this distrust. Without proper savings and investments, there can be no financial stability. And that will remain cause for marital discord.
4. Employment & Job Opportunities
An employer will hire you only when you appear to be financially stable. Because they don’t want your money problems to affect their business. Financially stable people are able to focus better on work and can prove highly productive. They don’t take their money related issues to work.
While poorer people are also hardworking and efficient, their financial woes sometimes stresses them beyond limit. Their money problems also attend office. As a result, their productivity can be inconsistent. This is not a rule as such but such situations can arise.
5. Owning a Permanent Home
Owning a home has great significance in India. For most ordinary Indians, owning a home is a lifetime goal. And many achieve this objective through hard work and proper financial planning. Having own house has immense benefits : it’s an asset whose value increases over the years. And it provides shelter.
Financially unstable people have to live in rented premises, often very cheap and seedy accommodations, unless they have parental or ancestral home. They are dependent upon others for the basic human need- shelter. And they can lose shelter anytime if the house owner evicts them for any reason.
6. Old Age & Retirement
Yet another reason why financial stability is important in life is for old age and retirement. A financially stable person or couple is able to invest in schemes & plans for amass wealth of those golden years when regular income ceases. Hence, they can lead happier life as retirees.
In stark contrast, a financially unstable person would usually be dependent upon some kindly relative to provide food, shelter and clothing and often, medicines during old age. Unless some charity decides to onboard them, financially unstable people face the very gloomy prospect of destitution during old age.
So at the end it implies that everyone gets opportunities to become financially stable. Yet, these people fail because they can’t manage finances, save or invest astutely.
Shiv Nanda is a financial analyst at MoneyTap who loves to write on various financial topics online. He also advises people on financial planning, investment choices and budgeting skills, and helps them make their financial lives better.
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Home > DISSERTATIONS > AAI13420048
Nimrod Segev , Fordham University
This dissertation consists of three independent chapters that study the relationship between monetary policy and financial stability. In the first chapter, I present new empirical evidence for the existence and the aggregate economic implications of the "risk-taking channel" of monetary transmission. I first use loan-level data from the syndicated loan market in the U.S. to show that monetary policy affects banks' sensitivity to risk. I then provide evidence for the significant contribution of risk-taking shocks and changes in banks' risk-taking behavior to economic outcomes and business cycle fluctuations. The second chapter examines how competition in the banking sector affects the transmission of monetary policy and the variation of credit expansion across regions in the United States. Using the U.S. branching deregulation between 1994 to 2008 as an exogenous change in banks' competition, I analyze how banks' market power affects monetary policy transmission through the bank lending channel. The results document a significant and negative relationship between banks' market power and the effect of monetary policy on banks loan supply. I then show that states with a more deregulated banking sector were more affected by monetary conditions in the years leading to the Great Recession. Specifically, the effect of loose monetary conditions on the expansion of households' debt was stronger in states that had fewer bank branching restrictions. The results suggest that variations in the level of bank competition may have amplified regional asymmetries in years leading to the Great Recession. The third chapter studies the effect of bank competition on the optimal use of monetary and macroprudential policies. I first present empirical evidence documenting the dampening impact that banks' market power has on the transmission of monetary policy in the United States. To study the policy implications of these findings, I develop a New Keynesian DSGE model with collateral constraints and an imperfect competitive banking sector. The results from the model demonstrate that the degree of competition in the banking sector has a sizable impact on the optimal mix of monetary and macroprudential policies. Specifically, the gains from leaning-against-the-wind monetary policy are substantially smaller when the banking sector is less competitive.
Economics|Finance
Segev, Nimrod, "Essays on Monetary Policy and Financial Stability" (2019). ETD Collection for Fordham University . AAI13420048. https://research.library.fordham.edu/dissertations/AAI13420048
Since June 25, 2019
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The Federal Reserve monitors financial system risks and engages at home and abroad to help ensure the system supports a healthy economy for U.S. households, communities, and businesses.
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Speech by Klaas Knot, Chair, Financial Stability Board, at the IMF/World Bank Constituency meeting in Moldova, 11 July 2024
The views expressed in these remarks are those of the speaker in his role as FSB Chair and do not necessarily reflect those of the FSB or its members.
Innovation is everywhere. Take the wine industry here in Moldova, for example. An industry that goes back thousands of years. When I was preparing for this meeting, it was pointed out to me that recent innovations in agriculture have greatly improved wine production in your country. I was particularly amazed to hear about the use of drones to monitor the health of vineyards. And about the optimisation of grape production through automated irrigation systems and data analytics. If you want to get a literal taste of what innovation can bring, look no further than Moldova.
Since the early days of economics, we’ve known that technological innovation is an important driver of economic output per worker, and therefore of wealth and prosperity. That’s why generative artificial intelligence is so exciting: with the emergence of incredibly capable generative models and dramatic advances in computing power, we might very well be on the verge of a new technological revolution. Studies suggest that AI can greatly increase total factor productivity across several industries, including the financial sector, healthcare, manufacturing, energy, transport and logistics. Research also shows that the use of AI can significantly improve productivity within individual companies. This may contribute to economic growth in a meaningful way.
This would be great news. At the recent IMF Spring Meetings, the talk of the town was lagging productivity growth. In large parts of the world, productivity growth has been sluggish for many years now, so a boost from AI would be very welcome.
Obviously, it’s difficult to predict the impact AI will have on the economy and productivity at this juncture. We’re already amazed at what ChatGPT and other generative AI models can do. But when we look back five years from now, today might very well seem like the Stone Age. I will certainly not claim to have all the answers. But we can make some intelligent guesses about the impact of AI, based on recent developments and sound economic thinking.
For one thing, AI will likely shake up labour markets. Although the jury is still out on the net effects, we know that the current wave of generative AI presents new dynamics. It can both replace and complement human labour. So like any other new technology, AI can create and destroy jobs. What’s new about AI, however, is that it’s especially the high-skilled, high-paying jobs that are vulnerable. The ultimate impact is likely to be sector specific, and will partly depend on companies’ creativity, and their ability to adopt AI in a way that complements, rather than replaces, human labour. Policies and regulations can also help steer these developments. It’s especially important to have social safety nets in place to support workers who have lost their jobs, as well as labour market policies to help workers stay employed. Tax policies should also be carefully assessed to ensure that tax systems don’t favour indiscriminate labour replacement. IMF research shows that several countries have tax systems in place that implicitly favour automation over facilitation. So we need to make sure that our regulatory and fiscal policies do not work against our needs.
Differences in economic structures and education levels mean that AI may have different impacts across different countries. According to the IMF, almost 40 percent of global employment is exposed to AI. Advanced economies are at greater risk, but are also better positioned to reap the benefits of AI compared to emerging market and developing economies. In advanced economies, about 60 percent of jobs are exposed to AI, due to the prevalence of jobs that revolve around cognitive tasks. Of these 60 percent, about half may be negatively affected by AI, while the rest could benefit from enhanced productivity through AI integration. In emerging market economies, overall exposure is 40 percent, and in low-income countries it is 26 percent. This means that many emerging market and developing economies may experience less immediate AI-related disruption. On the other hand, they’re also less ready to take advantage of AI’s capabilities. This could have a negative impact on the digital divide and income inequalities between countries. That’s why emerging market and developing economies should give priority to the development of digital infrastructures and digital skills.
There are many open questions concerning AI. Instead of pretending to know the answers, my message would be this: artificial intelligence is neither the great villain nor the great saviour of our time. It’s a technology that we can use to our benefit, but only if we implement the right policies and regulations.
As regulators and policymakers, we should therefore maintain a healthy balance between harnessing the benefits of innovation while mitigating the risks. When it comes to innovation, the Americans have traditionally been focused on the opportunities, with a regulatory environment that’s more flexible and conducive to business innovation. Europeans tend to focus on the risks and call for regulation. But falling behind in adopting new innovations is a significant risk too, as all parts of the world should benefit from the productivity potential of AI. So I would call for a slightly more American attitude to things, and warn against stifling AI-driven innovation.
That said, welcoming and fostering innovation doesn’t relieve us of the obligation to monitor the risks that come with it. And that is my focus as chair of the FSB.
This year, we are updating an FSB paper on the financial stability implications of artificial intelligence, originally published in 2017. While it’s too early to say with certainty what our conclusions will be, the emerging consensus is that the risks identified in the earlier report are still there. The most important ones are concentration risk, third-party risks, possible increases in herding behaviour, and model risk, including challenges with regard to explainability.
Many of the potential risks of AI may seem new, but when you look beneath the surface, they are strikingly similar to traditional financial risks. Risks that we are familiar with. We already have frameworks to assess concentration risk, third party dependence and interconnectedness. This is good news. But potential new forms of interconnectedness in the financial system may emerge. For example, autonomous trading agents may interact to create new dynamics in financial markets. Some studies have found that AI-powered algorithms consistently learn to charge higher prices through collusive strategies, even if there’s no direct communication between them. Such interdependencies may be especially pronounced if the market for data and model providers is highly concentrated, which appears to be the case for generative AI models in particular. Although there are lots of applications out there, in practice they all seem to be based on only a handful of models, perhaps just three or four.
At this stage, the FSB’s work is purely analytical. We are not currently developing policy options or coordinating across standard setting bodies or international organisations. But the FSB is ready to do what is needed to monitor these risks and implement effective regulatory frameworks.
Regulating a fast-changing, almost ubiquitous technology may sound daunting, but we have many good tools at our disposal. AI is not a new discipline – various use cases have been around for quite some time now. And as I pointed out earlier, many of the risks involved are risks we’re already familiar with. They’re just wearing new disguises. Although this is no reason for complacency, we can take comfort in the fact that we’re not starting from scratch.
In short, I see the glass as half full. Innovation has brought us many good things throughout history, from the printing press to drones that can help improve wine production. The possibilities of AI may be endless, but humans are inventive. So I’m confident that we’ll be able to put AI to good use while keeping its darker sides in check.
1 november 2017 artificial intelligence and machine learning in financial services.
This essay is about understanding the core principles and impact of economics. It explains how economics studies human behavior and decision-making in the context of managing limited resources. The essay covers key concepts such as scarcity, trade-offs, supply and demand, and incentives. It distinguishes between microeconomics, which focuses on individual and firm behaviors, and macroeconomics, which looks at broader economic phenomena. The essay also highlights the importance of economic theories and models in guiding policies for economic stability and growth. Additionally, it discusses the relevance of economics in addressing global issues like poverty, inequality, and sustainability, emphasizing the role of informed decision-making in improving societal well-being.
How it works
Economics is often perceived as a dry and complex subject, brimming with charts, graphs, and an array of technical jargon. However, at its heart, economics is a fascinating study of human behavior and decision-making. It delves into how individuals, businesses, and governments allocate resources, make choices, and respond to incentives. The implications of these choices can ripple through societies, affecting everything from the prices of goods and services to the availability of jobs and the stability of economies.
At its most fundamental level, economics examines how people manage scarcity.
Resources are limited, and individuals must decide how to best use what they have to meet their needs and wants. This decision-making process involves trade-offs; choosing one option often means forgoing another. For example, a family might need to decide whether to spend their disposable income on a vacation or save it for future expenses. Each choice comes with its own set of benefits and costs, which economists refer to as opportunity costs.
The study of economics can be broadly divided into two main branches: microeconomics and macroeconomics. Microeconomics focuses on the behaviors of individuals and firms, analyzing how they make decisions and interact in specific markets. It looks at issues such as consumer behavior, pricing strategies, and competition among businesses. On the other hand, macroeconomics examines the economy as a whole. It explores broader phenomena such as inflation, unemployment, and economic growth. Macroeconomics seeks to understand how policies and external factors influence an entire economy’s performance and stability.
One of the key concepts in economics is the idea of supply and demand. These forces drive the market, determining the prices of goods and services. When demand for a product increases, prices tend to rise, encouraging producers to supply more. Conversely, when demand falls, prices usually drop, and production slows. This interplay creates a dynamic and ever-changing marketplace. Understanding these patterns can help predict economic trends and guide decisions in business and policy.
Another crucial element in economics is the role of incentives. Incentives are factors that motivate individuals and organizations to act in certain ways. They can be financial, such as profits and wages, or non-financial, like social recognition and personal satisfaction. Economists study how these incentives influence behavior and outcomes. For instance, tax incentives can encourage businesses to invest in certain areas, while penalties can deter undesirable activities.
Economic theories and models provide frameworks for understanding complex realities. While they may not always capture every nuance, they offer valuable insights into how economies function and how different variables interact. These models are essential tools for policymakers, who rely on them to design and implement measures that can promote economic stability and growth. For example, during a recession, governments might use expansionary fiscal policies, such as increasing public spending or cutting taxes, to stimulate demand and create jobs.
In today’s interconnected world, the study of economics is more relevant than ever. Globalization has woven economies together, making them highly interdependent. Events in one part of the world can have far-reaching effects elsewhere. A financial crisis in one country can trigger a chain reaction, impacting international trade, investment, and employment. Understanding these global linkages is crucial for navigating the challenges and opportunities of the modern economy.
Economics also plays a vital role in addressing some of the most pressing issues of our time, such as poverty, inequality, and environmental sustainability. By analyzing the root causes and potential solutions, economists can help craft policies that promote inclusive growth and sustainable development. For example, addressing income inequality might involve measures like progressive taxation, education, and healthcare investments, and policies that ensure fair wages and opportunities for all.
Ultimately, the study of economics is about more than just numbers and theories; it’s about understanding the world we live in and making informed decisions that can improve our lives. Whether it’s a government planning its budget, a business strategizing for growth, or an individual managing their finances, the principles of economics are at play. By grasping these concepts, we can better navigate the complexities of our choices and contribute to a more prosperous and equitable society.
Understanding Economics: The Core Principles and Impact. (2024, Jul 21). Retrieved from https://papersowl.com/examples/understanding-economics-the-core-principles-and-impact/
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"Understanding Economics: The Core Principles and Impact," PapersOwl.com , 21-Jul-2024. [Online]. Available: https://papersowl.com/examples/understanding-economics-the-core-principles-and-impact/. [Accessed: 21-Jul-2024]
PapersOwl.com. (2024). Understanding Economics: The Core Principles and Impact . [Online]. Available at: https://papersowl.com/examples/understanding-economics-the-core-principles-and-impact/ [Accessed: 21-Jul-2024]
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A ll around the world, stockmarkets have been rising at a breakneck pace. Whether you are in America, Europe, Japan or India, prices listed on a bourse near you have spent most of this year setting fresh records, only to break them again straight away (see chart 1). America’s S & P 500 index has jumped by over 70% since a trough in 2022, and risen during 28 of the past 37 weeks, its best streak in more than three decades. True, Chinese investors are in a funk, with stocks yet to recover from a plunge that began last year. But they cut lonely figures: exclude China from MSCI ’s index of emerging-market shares, and the remainder have been clocking rapid gains, too.
This article appeared in the Finance & economics section of the print edition under the headline “Matadors gather”
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Comparing the similarities and differences in Sri Lanka’s five latest agreements with the IMF highlights the country’s economic trajectory since 2001.
Over the past two decades, Sri Lanka’s economic trajectory has been significantly shaped by assistance from the International Monetary Fund (IMF). Through a series of programs, the IMF has sought to stabilize the country’s economy, enforce fiscal discipline, and promote sustainable growth. To date, Sri Lanka has engaged in 17 IMF programs . The most recent of these initiatives is the Extended Fund Facility approved in 2023 .
A critical evaluation of the policy objectives within these programs reveals recurring themes as well as unique aspects specific to each intervention.
Key Factors Behind the 5 Most Recent IMF Programs
This analysis spans the five most recent IMF programs: the Standby Arrangement (SBA) in 2001, the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) in 2003, another SBA in 2009, the EFF in 2016, and the most recent EFF in 2023. Each program was launched in response to specific economic challenges faced by Sri Lanka, ranging from fiscal deficits and currency devaluation to post-war reconstruction and the impacts of global financial crises.
In 2001, despite achieving a 6 percent GDP growth rate in 2000, Sri Lanka’s economy encountered significant fiscal challenges. The rapid escalation in government spending and borrowing by public enterprises resulted in a fiscal deficit of approximately 10 percent of GDP. This situation was exacerbated by the depletion of foreign reserves, depreciation of the exchange rate, and rising short-term interest rates, underscoring the necessity for IMF intervention. The Standby Arrangement introduced in 2001 aimed to restore macroeconomic stability, enhance public sector finances, and rebuild reserves through the implementation of a flexible exchange rate system.
By 2003, Sri Lanka had reached a pivotal moment with the initiation of a peace process. The government introduced “ Regaining Sri Lanka ,” a comprehensive economic reform and poverty reduction strategy aimed at accelerating growth and alleviating poverty through private sector-led development. This approach marked a departure from previous policies focused on redistribution and transfers. The Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs established in 2003 were designed to support these reforms, stabilize the economy, and restore fiscal sustainability.
The global financial crisis of 2008 had a severe impact on Sri Lanka. Lax fiscal policies, dependence on short-term external financing, and an overvalued exchange rate rendered the country particularly vulnerable. The sudden cessation of capital flows and a sharp decline in foreign reserves necessitated IMF intervention. The 2009 Standby Arrangement (SBA) was implemented to facilitate adjustment to the external shock, restore fiscal health, and stabilize the financial system while preventing a disruptive devaluation.
The Extended Fund Facility in 2016 was introduced during a period of political transition, presenting an opportunity to reset macroeconomic policies. Despite underlying economic momentum, Sri Lanka faced challenges due to unbalanced policies and a difficult external environment. The Extended Fund Facility of 2016 aimed to implement structural reforms to enhance growth, reduce public debt, and strengthen financial stability, thereby laying the groundwork for sustained economic development.
The most recent Extended Fund Facility in 2023 was implemented in response to an unprecedented economic crisis, compounded by substantial fiscal imbalances, loss of access to international capital markets, and the repercussions of COVID-19. The program aimed to restore macroeconomic stability and debt sustainability, alleviate the impact on vulnerable populations, and bolster financial sector stability. Additionally, it focused on governance reforms to reduce corruption vulnerabilities and enhance growth potential.
Analysis of Policy Objectives
The table below presents the aims and objectives of recent IMF programs in Sri Lanka. The objectives of each program have been coded using the program name. The objectives of these programs reflect both recurring themes and context-specific priorities.
A critical examination of the policy objectives of these IMF programs reveals 11 themes with which the recent IMF programs align. The figure below visualizes these 11 themes and how they appear in each IMF program.
The figure above illustrates that all five recent IMF programs aimed to achieve revenue-based fiscal consolidation, highlighting Sri Lanka’s ongoing struggle with fiscal deficits and its failure to maintain progress across successive programs. Additionally, these IMF programs share other significant policy objectives, including restructuring state-owned enterprises (SOEs), strengthening foreign exchange reserves, and enhancing financial system stability.
Among the five recent IMF programs, four – all but the SBA in 2009 – have focused on SOE restructuring. This issue remains a policy priority in the latest IMF program, emphasizing Sri Lanka’s persistent challenges in reforming SOEs, particularly the Ceylon Electricity Board and the Ceylon Petroleum Corporation.
Strengthening foreign reserves has been a common target in most programs, reflecting the typical motivation for seeking IMF assistance during periods of foreign reserve shortages.
However, certain policy objectives were specific to one or two programs, representing key differences among recent IMF program goals. Notably, post-conflict reconstruction and humanitarian aid were objectives in only two programs: the ECF/EFF program in 2003 and the SBA in 2009, both initiated after extended civil conflict. The 2003 program followed peace talks with the LTTE, while the 2009 program commenced after the war ended.
Moreover, themes such as restoring price stability and public debt sustainability, mitigating corruption risks, and empowering economically disadvantaged groups were prioritized in only two recent IMF programs, particularly within the 2023 EEF, due to the specific contextual needs at the time.
The examination of IMF programs in Sri Lanka since 2000 highlights both continuity and change in policy objectives. Recurring themes such as revenue-based fiscal consolidation, SOE restructuring, and financial stability underscore persistent economic challenges. Meanwhile, the unique objectives of each program reflect the specific socioeconomic contexts at the time. This analysis not only illuminates the evolving nature of IMF interventions in Sri Lanka but also underscores the importance of context-specific policy responses to address Sri Lanka’s dynamic economic landscape.
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Stock trading: how to get started for beginners.
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We all want to be the next person to win big with a lucky stock trade. Unfortunately, this isn't in the cards for most traders. In reality, it takes a lot of knowledge, research, discipline, and patience to become a profitable stock trader.
"Investing is not about getting rich quick. Investing is about getting rich slowly," says Randy Frederick , vice president of trading and derivatives at Charles Schwab. These are wise words to live by if you're new to the stock market and wondering if trading is right for you.
But if you're curious about the thrill of short-term buying and selling and the potential profits that can come along with it, here are the basics of stock trading and the steps that will help get you started.
Stock trading entails buying and holding stocks for a short period of time in order to turn a quick and significant profit. Traders aim to take advantage of short-term pricing fluctuations in the market.
Trading can be contrasted with investing , the approach to the stock market that aims to gradually build wealth by holding assets over a long period of time. Whereas investors buy stocks and hold them for many years, traders hold them for only an hour, a day, a week, or a few months.
There are two main types of stock trading: active and passive trading.
Active trading is a highly technical approach with the goal of capitalizing on short-term price fluctuations. Active traders are generally divided into two camps, based on the time period in which they hold their securities:
Passive trading focuses more on stocks' long-term trends, rather than short-term fluctuations or market news. Position trading is a type of passive trading.
Passive traders buy based on overall market trends, and sell when they believe the security hits its peak, which can take months. They generally trade less than active traders. In this way, passive traders are more akin to long-term investors who follow a buy-and-hold strategy .
Stock trading is a tricky business. Yes, trading individual stocks can be exciting and profitable, but it's not easy. Here are a few things to keep in mind:
Successful trading takes time and commitment. If you're just starting out in trading stocks, it's best to avoid day trading and consider longer-term strategies. "Day trading is actually the worst option for beginner investors," says Frederick. In reality, for every person who makes millions off of a lucky trade, there's thousands of others who lost money trying the same tactic.
Whether you plan to trade full-time or part-time, the bottom line is trading requires a lot of time to follow the markets and spot opportunities. And when it comes to trading within short-to-medium timeframes, timing can often be everything.
Trading has tax implications. Don't let the thrill of making a quick buck distract from your obligation to the IRS. It's important to understand how taxes on trades could affect your tax bill.
When you sell your stocks for a profit, you are subject to capital gains tax . While profits on stocks held for more than a year get a special tax rate — meaning you'll most likely pay lower taxes — profits on stocks held for less than a year are taxed at the same rate as your regular income.
Knowledge is power for trading safely. Instead of blindly pursuing "hot" stock tips from a neighbor or recommendations from Wall Street analysts, it pays to develop your own trading ideas. When you study historical stock movements and research an investment yourself, you'll be able to ride market volatility or formulate an exit strategy with confidence.
Moreover, experts agree that one of the worst things you can do is let your emotions or bias influence your investing decisions. Excessive emotional trading is one of the most common ways investors damage their returns.
Now that you're armed with the stock-trading basics, it's time to get into the real deal. Just make sure you take your time to learn the ropes. "Dip your toe in," Frederick says. "Don't dive in."
You will need a broker to make trades, so you'll want to find one that you like and trust. There are several brokers to choose from, each with their own specialties.
As you decide on a broker, choose one with the tools, features, and interface that best complement your trading style and know-how. Other things to consider are fee structures, on-the-go accessibility, stock analysis tools, and educational resources. In the end, beginner traders will want a firm that has a wide offering and that will be there when times get tough.
If you're not sure where to begin, see our recommendations for the best stock trading apps .
Set a trading budget for yourself and stick to it. Frederick suggests that if you're drawn toward shiny new investments or companies, allocate up to 1% or 2% of your investment budget toward those assets. You can start trading with just about any amount, but don't touch money you might need in the short-term, like for mortgage payments or emergencies.
Generally, trading relies on "technical analysis," or making decisions based on stock price and historical market data, rather than "fundamental analysis," which involves evaluating a company and determining its true worth .
The goal of technical analysis is to analyze price movements of a security in an attempt to forecast future price movements. While a technical analyst may look at statistical trends and patterns with charts, a fundamental analyst will start with a company's financial statements.
While the two styles of analysis are oftentimes considered as opposing approaches, it makes financial sense to combine the two methods to give you a broad understanding of the markets to help you better gauge where your investment is heading.
In short: Any time well spent learning the fundamentals of stock trading is time well spent.
As you begin improving your analytical skills, you can easily put them to practice. Give stock trading a try without putting real money on the line with virtual trading, or paper trading. Virtual trading allows you to test your trading skills in a low-stakes environment.
Reputable online programs include TD Ameritrade's paperMoney , MarketWatch's Virtual Stock Exchange , and Power E*TRADE .
Once you fund your brokerage account and you're ready to place your first trade, it's time to drum up a plan, which will help you maintain discipline and consistency as a trader.
A good trading plan typically outlines entry (buy) and exit (sell) points, informed by your skill level, risk level, and your overall goals. Keep in mind that every position you hold will most likely come with its own technical parameters — so keep in mind the time and effort you'll need to give each stock the attention it deserves.
A fractional share allows an investor to own a small portion, or fraction, of one whole share of a stock. Exchange-traded funds can also be bought as fractional shares. Previously, retail investors would need to have thousands of dollars to invest in an expensive stock like Amazon, for example. Now, they can own a slice of Amazon with as little as $5, so they can build a diversified portfolio no matter their investing budget.
A stockbroker is a type of broker that allows you to buy and sell stocks, bonds, and other securities. When you choose a broker, you open a brokerage account, which is a fundamental step to becoming an investor. Securities are bought and sold on stock exchanges, like the New York Stock Exchange and Nasdaq. Because these exchanges require special access or membership to trade, investors need brokers to facilitate transactions. Broker firms and individuals become members of specific exchanges by meeting certain regulatory standards set by the Financial Industry Regulatory Authority (FINRA).
A cyclical stock rises and falls in tandem with the economy. When the economy is strong, unemployment is low, and production and consumer spending are high, cyclical stocks tend to gain value. But when a weakening economy hits — causing businesses to contract and lay workers off, and people to shut their wallets — the value of these stocks goes down.
Cyclical stocks can rapidly drive gains in a portfolio when the economy expands, with supply and demand in specific sectors growing. But they can also quickly reduce the value of a portfolio when spending slows and the economy starts to shrink, further dampening demand. So timing is key to investing wisely with cyclical stocks.
A defensive stock can be relied on to provide consistent returns even during an economic or market downturn. These companies typically offer goods or services people buy even when the economy isn't doing well. There are no hard and fast rules to define a defensive stock, but there are some general guidelines you should look for:
Momentum investing is a different approach to the stock market than other investing strategies, focusing on the pure market instead of fundamentals that drive the market. In physics, an object in motion will stay in motion until it's acted upon by an external force. Momentum investors apply the same rule to stock prices, expecting a growth trend to continue over the course of a few months. Momentum investing works on the belief that if a stock's price is increasing, it will continue to increase in the intermediate term. Once that momentum dries up — either the price has plateaued or starts declining — it's time to sell.
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Slope stability analysis of rockfill embankments considering stress-dependent spatial variability in friction angle of granular materials.
Ran, C.; Zhou, Z.; Lu, X.; Gong, B.; Jiang, Y.; Wu, Z. Slope Stability Analysis of Rockfill Embankments Considering Stress-Dependent Spatial Variability in Friction Angle of Granular Materials. Appl. Sci. 2024 , 14 , 6354. https://doi.org/10.3390/app14146354
Ran C, Zhou Z, Lu X, Gong B, Jiang Y, Wu Z. Slope Stability Analysis of Rockfill Embankments Considering Stress-Dependent Spatial Variability in Friction Angle of Granular Materials. Applied Sciences . 2024; 14(14):6354. https://doi.org/10.3390/app14146354
Ran, Congyong, Zhengjun Zhou, Xiang Lu, Binfeng Gong, Yuanyuan Jiang, and Zhenyu Wu. 2024. "Slope Stability Analysis of Rockfill Embankments Considering Stress-Dependent Spatial Variability in Friction Angle of Granular Materials" Applied Sciences 14, no. 14: 6354. https://doi.org/10.3390/app14146354
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IMAGES
VIDEO
COMMENTS
Financial stability is paramount for economic growth, as most transactions in the real economy are made through the financial system. The true value of financial stability is best illustrated in its absence, in periods of financial instability. During these periods, banks are reluctant to finance profitable projects, asset prices deviate ...
the two phenomena are not the same. The principal focus of this essay will be financial stability, that is, the stable functioning of the intermedi-aries and markets that make up the financial system. There is, as yet, no generally accepted definition of financial stability. For the purpose of this survey, I shall take it to be an absence of
Essays on Financial Stability by John Chant, Alexandra Lai, Mark Illing, and Fred Daniel. The views expressed in this report are solely those of the authors. No responsibility for them should be attributed to the Bank of Canada. September 2003 Essays on Financial Stability
Essays on Financial Stability tor until the early 1980s. The regulations in place in the period following the great depression until the period of liberalisation in the 1970s and 1980s suggest that regulators at the time held the 'competition-fragility' and 'concentration-stability' views.
The first essay empirically analyses how the capital buffer held by banks behave over the business cycle after financial factors have been accounted for. Using a large panel of banks for the period 2000-2014, it documents evidence that capital buffers behave more pro-cyclical than previously found in the literature.
Global Financial Stability Report, October 2021. October 6, 2021. Description: Financial stability risks have been contained so far, reflecting ongoing policy support and a rebound in the global economy earlier this year. Chapter 1 explains that financial conditions have eased further in net in advanced economies but changed little in emerging ...
Abstract. This thesis consists of three chapters that analyze the stability of financial institutions. The focus lies on self-fulfilling liquidity crises that are associated with maturity transformation conducted by financial intermediaries such as banks. The first chapter shows that the government has a distinct role in ensuring the ...
In his essay, Mark Illing provides four case studies of episodes often thought of as periods of financial stress or crisis—the stock market crash of October 1987, the near-collapse of Long-Term Capital Management in 1998, the failures of the Canadian Commercial Bank and the Northland Bank in 1985, and the Bank of New York's 1985 computer problem.
The first three essays consider different aspects of the question, What is financial stability/instability? The first essay, by John Chant, Special Adviser at the Bank in 2001-02, considers how financial instability differs from other kinds of instability, how it is different from the volatility normally associated with a well-functioning ...
Abstract: This thesis is a collection of essays where I explore and extend the study of the role of financial frictions for the determination of asset prices, financial stability, and economic resilience. The frictions included in the analysis are individual and aggregate uncertainty, agent heterogeneity, money, liquidity and default.
The first essay, by John Chant, Special Adviser at the Bank in 2001-02, considers how financial instability differs from other kinds of instability, how it is different from the volatility normally associated with a well-functioning financial system, and how instability can be propagated within the financial system and to the real economy. In ...
This dissertation is composed of three essays related to financial institutions and financial stability. The first essay constructs a measure of integration among global banks and examines its impact on bank insolvencies and bank crises. This measure indicates that the banking industry has become more globally integrated over the past two decades.
Financial stability risks have increased rapidly as the resilience of the global financial system has faced a number of tests. Recent turmoil in the banking sector is a powerful reminder of the challenges posed by the interaction between tighter monetary and financial conditions and the buildup in vulnerabilities since the global financial crisis.
Practically speaking, stability is a balance among the agents participating in the financial environment: market par- ticipants weave relationships, creating dependencies and interconnec- tions. ... Essays on financial stability: old and new risk sources Ilaria, Gianstefani (2023) Essays on financial stability: old and new risk sources.
This second essay and video, The Role of Education in the ''Demographics of Wealth'' series from the St. Louis Fed's Center for Household Financial Stability discusses that more education usually leads to more money, but the authors of this study caution that the former doesn't guarantee the latter for a variety of reasons. May. 5, 2015.
The first essay, by John Chant, Special Adviser at the Bank in 2001-02, considers how financial instability differs from other kinds of instability, how it is different from the volatility ...
This thesis includes three essays on the interaction between financial market institutions and market liquidity, and its implications for financial stability. The first essay studies an overlapping generations model of a risky asset market in which some agents face a participation cost. Market participation, by affecting the size of the pool of ...
1.1 Market structure and financial stability The structure of the banking market has historically been an important element of the academic and policy debate on financial stability. As in other, non-financial markets, the structure of the banking market is often seen as an important requisite for an effective system. The past
Even a shady character loaded with money gets respect. Hence, financial stability buys respect. 2. Physical & Mental Wellbeing. Another reason why financial stability is important to life is for life itself. Generally, people that are financially unstable suffer from stress and emotional disorders.
Essays on financial stability. This thesis consists of two essays concerning how banking regulations may promote financial stability. The first chapter investigates the competition-concentration-stability nexus from a novel perspective, by considering how concentration and, inter alia competition, affect the likelihood of an individual bank ...
This dissertation consists of three independent chapters that study the relationship between monetary policy and financial stability. In the first chapter, I present new empirical evidence for the existence and the aggregate economic implications of the "risk-taking channel" of monetary transmission. I first use loan-level data from the syndicated loan market in the U.S. to show that monetary ...
Financial Stability. The Federal Reserve monitors financial system risks and engages at home and abroad to help ensure the system supports a healthy economy for U.S. households, communities, and businesses. The Panic - Run on the Fourth National Bank, No. 20 Nassau Street [New York City, 1873]. (Image LC-USZ6-952 via Library of Congress Prints ...
Key Takeaways. Financial stability defines the financial system of a country based on the availability of resources, utilities, loans, and employment opportunities. Economic stability is measured using GDP, inflation, fiscal deficit, trade deficit, interest rates, employment levels, income inequality, and cash flows.
This year, we are updating an FSB paper on the financial stability implications of artificial intelligence, originally published in 2017. While it's too early to say with certainty what our conclusions will be, the emerging consensus is that the risks identified in the earlier report are still there. The most important ones are concentration ...
The essay also highlights the importance of economic theories and models in guiding policies for economic stability and growth. Additionally, it discusses the relevance of economics in addressing global issues like poverty, inequality, and sustainability, emphasizing the role of informed decision-making in improving societal well-being.
Essay; Schools brief; Business & economics. Finance & economics; Business; Big Mac index; ... Mr Kaiser notes, could be the catalyst for a bond-market crash. By threatening financial stability ...
The Extended Fund Facility of 2016 aimed to implement structural reforms to enhance growth, reduce public debt, and strengthen financial stability, thereby laying the groundwork for sustained ...
Stock trading is the buying and selling of securities in order to make a profit. But there's a lot to know before getting started and comes with risk.
Reimbursement checks were slow to arrive, placing the family in a financial bind. These were common complaints among the fund's families, Ms. Olivio would learn — so frequent that one mother ...
Slope stability is a major safety concern of rockfill embankments. Since rockfills are incohesive materials, only friction angle is considered as a shear strength parameter in the slope stability analysis of rockfill embankments. Recently, it was found that confining pressure can significantly affect the mean value and variance of the friction angle of rockfills.