**MENTORING - Session 2 - Fundamentals - Financial Institutions ((15) A…
**MENTORING - Session 2 - Fundamentals - Financial Institutions
(2) We have already learnt about company fundamentals. Now we will focus on stock fundamentals and market fundamentals.
(1) Fundamentals comprise three parts: (a) company fundamentals; (b) stock fundamentals; (c) market fundamentals
(3) Before going into understanding stock fundamentals and market fundamentals, we will learn about (a) financial institutions and (b) financial instruments.
(4) Financial institutions are only a part of the market ecosystem, but they are most crucial players who can move the market. Hence, we will focus only on them. The rest - retail and speculators - are only the other part of the market.
(5) A financial institution in a stock market is mostly a buyer or seller of securities/contracts like a retail/speculative trader/investor.
(6) Financial institutions in the stock market are a subset of all financial institutions. These institutions in the stock market are primarily involved in the business of stock markets.
(7) Then what are the financial institutions we are talking about? (a) brokers; (b) dealers; (c) broker-dealers; (d) mutual funds; (e) investment banks; (f)
(8) Before understanding them, there is a clear demarcation of what type of players these institutions are.
(9) Any institution can be one of the two types: (a) buy side; (b) sell side. A buy-side institution "buys" stock market services. A sell-side institution "sells" stock market services.
(10) As a result, the sell-side institutions provide services to the buy-side institutions.
(11) Sell side institutions are very powerful because they have the knowledge and depth to operate in the market. Buy side institutions are far more powerful, because they pay for these services.
(12) What are the services we are talking about which sell side sells and buy side buys. They are: (a) research; (b)
execution and transaction
; (3) banking.
(13) How does this industry work? A buy side institution gets money from its clients (either retail or institutions or anyone, but that is not important). It will look for taking stock market services, and sell side provides it. As a part of the process, buy side will look around for a credible institution that can execute and transact skillfully.
(14) A buy side institution is a financial institution that collects money from various investors (retail or organisation) and pools money to give them back with a consistent return over a LONG period of time.
The motto can be anything - return, risk or growth.
(15) A buy side institution can be a mutual fund or an insurance company or a pension fund or a sovereign wealth fund (SWF) or a university endowment or a trust. They are generally called as asset managers.
We will call them "real money" because they are the real institutions which are putting the money in the market.
(16) Real money buys services from the sell side, which can be a broker or a dealer or an investment bank, which are also called broker dealers sometimes when they do not have M&A services.
(17) A real money player takes research, execution and transaction, and banking services from the sell side. However, we should focus only on execution and transaction services for our course.
(18) We will learn what are the aspects that real money sees when buying or selling a stock. Real money does not trade. It will only enter over long periods of time. We will enter when they buy and exit when they sell.
So our intraday trades come from their one-side trades.
(19) Conventional traders think a trade comes from a technical setup or fundamentals. But both are wrong. A trade comes when a real money is doing something.