The following section focuses on how the markets themselves function. Understanding how the markets function is key in determining how securities themselves function.

It is unlikely that your CFA Level 1 exam will test you directly on the topics presented, as the material itself is quite simplistic. However, you will be asked several comprehensive questions on this material.

CHARACTERISTICS
The characteristics of a well-functioning securities market are:

  • Efficient - Internal - Markets must be efficient internally.
  • Efficient - External - Markets react quickly to new news; existing prices reflect all available information.
  • Liquidity - Markets are liquid and as such, assets can be bought or sold easily. There are numerous buyers and sellers giving depth to the market.
  • Continuity - In the context of liquidity, prices do not change substantially from one transaction to another unless significant new news arises.
  • Marketability - In the context of liquidity, marketability is the ability to sell an asset quickly.
  • Timely and accurate information - New information is brought to the market in a timely and accurate way.


Issuing Bonds

Related Articles
  1. Personal Finance

    What's the SEC?

    The Securities and Exchange Commission (SEC) is an independent agency of the United States government. The mission of the SEC is to enforce securities laws passed by congress. These laws aim ...
  2. Investing

    Understanding Liquidity Risk

    Make sure that your trades are safe by learning how to measure the liquidity risk.
  3. Insights

    What is Liquidity Risk?

    Liquidity risk is the risk of being unable to sell an asset fast enough to avoid loss.
  4. Investing

    Understanding Financial Liquidity

    Understanding how this measure works in the market can help keep your finances afloat.
  5. Investing

    Market Efficiency Basics

    Market efficiency theory states that a stock’s price will fully reflect all available and relevant information at any given time.
  6. Financial Advisor

    What Is The Quick Ratio?

    Find out about this liquidity indicator and how it's used.
  7. Investing

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  8. Investing

    ETF Liquidity: Why It Matters

    Lower levels of liquidity in exchange-traded funds make it harder to trade them profitably.
  9. Investing

    Efficient Market Hypothesis: Is The Stock Market Efficient?

    Deciding whether it's possible to attain above-average returns requires an understanding of EMH.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center