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The Practical Guide to Wall Street: Equities and Derivatives

Book Description

The Practical Guide to Wall Street is an indispensable resource for anyone who aspires to a front-office sales or trading position on Wall Street and an essential desk reference for market practitioners and those who interact with this exciting but widely misunderstood industry. Written by an experienced trader in a clear, conversational style and assuming no previous background in finance, The Practical Guide to Wall Street provides a thorough schooling in the core curriculum of the equity and equity derivatives sales and trading business - exactly what you would learn from sitting beside the traders at a tier-one Wall Street investment bank (except that in practice, traders rarely have time to provide such detailed explanations!) Topics covered include:

  • Clear, detailed and intuitive explanations of all major products, their function, pricing and risks (several of which are unavailable anywhere else despite producing billions of dollars in annual revenue for Wall St.)

  • The layout of the trading floor, the roles and responsibilities of the different sales and trading groups and how they interact to service the client business

  • An overview of the structure of the macro-economy and the trader's perspective on the significance of economic data releases and their impact on the financial markets

  • A review of those concepts from fundamental valuation and financial statement analysis of greatest relevance on the trading floor (as opposed to abstract valuation models)

  • Practical details of the structure and functioning of the equity and derivative markets including translations of trader jargon, Bloomberg tips, market conventions, liquidity and risk considerations and much more...

This book provides the first comprehensive explanation of all aspects of the functioning of the equities division, with information, details and insights previously only available to those who already worked on a trading floor. The availability of this material in a format accessible to non-professionals fundamentally changes the level of industry knowledge employers in the financial services industry can expect of new hires.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Preface
    1. NEW HIRES
    2. EXPERIENCED PROFESSIONALS
    3. WHY DO WE NEED ANOTHER FINANCE BOOK?
    4. OVERVIEW OF CONTENTS
    5. LAYOUT
  5. A Comment on the Events of 2008
  6. Acknowledgements
  7. PART One - What Is a Stock?
    1. CHAPTER 1 - Equity Fundamentals (Part 1) Introduction to Financial Statements
      1. INTRODUCTION
      2. EQUITY AND CORPORATION
      3. INTRODUCTION TO FINANCIAL STATEMENTS
      4. THE BALANCE SHEET
      5. THE INCOME STATEMENT
      6. STATEMENT OF CASH FLOWS
      7. SUMMARY
    2. CHAPTER 2 - Equity Fundamentals (Part 2) Financial Ratios, Valuation, and Corporate Actions
      1. INTRODUCTION
      2. FINANCIAL RATIOS
      3. GROWTH AND VALUE
      4. BLOOMBERG
      5. VALUATION
      6. TECHNICAL ANALYSIS
      7. CORPORATE ACTIONS
      8. SUMMARY
  8. PART Two - Products and Services
    1. CHAPTER 3 - Cash Market
      1. INTRODUCTION
      2. HOW A STOCK EXCHANGE FUNCTIONS
      3. EXCHANGE STRUCTURE
      4. ORDER TYPES
      5. HOW THE CASH TRADING BUSINESS WORKS
      6. COMMUNICATION
      7. PURCHASING A STOCK IN A FOREIGN CURRENCY
      8. SUMMARY
    2. CHAPTER 4 - Equity Indices
      1. INTRODUCTION
      2. INDEX CONSTRUCTION
      3. WHAT AN INDEX DOESN’T TELL US
      4. VALUATION AND CALCULATION
      5. REPLICATING PORTFOLIO
      6. TRADING AN INDEX PORTFOLIO
      7. INDEX CHANGES
      8. INDEX DIVIDEND POINTS
      9. TOTAL RETURN INDEX CALCULATION
      10. MULTICURRENCY INDICES
      11. EQUITY INDICES IN PRACTICE
      12. INTERNATIONAL INDICES
      13. SUMMARY
    3. CHAPTER 5 - Program Trading
      1. INTRODUCTION
      2. EXPLANATION OF A SAMPLE TRADE
      3. WHEN IS PROGRAM TRADING MORE BENEFICIAL?
      4. PORTFOLIO ANALYTICS
      5. TRANSITION MANAGEMENT
      6. PRINCIPAL TRADES
      7. SUMMARY
    4. CHAPTER 6 - Exchange-Traded Funds (ETFs)
      1. INTRODUCTION
      2. TRADING MECHANICS
      3. NET ASSET VALUE (NAV)
      4. POPULARITY
      5. TRADING VERSUS HOLDING
      6. ETFS IN PRACTICE
      7. SUMMARY
    5. CHAPTER 7 - Forwards and Futures
      1. INTRODUCTION
      2. CALCULATION OF FAIR VALUE
      3. FUTURES
      4. INDEX ARBITRAGE
      5. THE FUTURES ROLL
      6. EXCHANGE FOR PHYSICAL (EFP)
      7. BASIS TRADES
      8. FUTURES CONTRACTS IN PRACTICE
      9. TECHNICAL COMMENT ON THE ACCURACY OF APPROXIMATIONS
      10. SUMMARY
    6. CHAPTER 8 - Swaps
      1. INTRODUCTION
      2. MOTIVATION FOR A SWAP
      3. A LONG EQUITY SWAP EXAMPLE
      4. THE SWAP IN DETAIL: DEFINITIONS AND TERMINOLOGY
      5. CALCULATION OF PAYMENTS
      6. SHORT SWAP
      7. BACK-TO-BACK SWAPS
      8. SWAPS AS A TRADING TOOL
      9. A COMMENT ON HEDGING
      10. SWAP VALUATION: ACCRUAL VERSUS NPV
      11. CURRENCY EXPOSURE
      12. ISDA
      13. RISKS AND OTHER CONSIDERATIONS
      14. SUMMARY
    7. CHAPTER 9 - Options (Part 1)
      1. INTRODUCTION
      2. DEFINITIONS AND TERMINOLOGY
      3. PAYOFF STRUCTURE
      4. OPTION VALUES PRIOR TO MATURITY
      5. QUANTITATIVE CONSIDERATIONS
      6. THE BLACK-SCHOLES DERIVATION
      7. TYPES OF VOLATILITY
      8. SUMMARY
    8. CHAPTER 10 - Options (Part 2)
      1. VOLATILITY TRADING
      2. OPTION SENSITIVITIES: THE “GREEKS”
      3. IMPLIED VOLATILITY REVISITED
      4. OTC AND EXOTIC OPTIONS
      5. SUMMARY
    9. CHAPTER 11 - The Trading Floor
      1. INTRODUCTION
      2. ORGANIZATION OF THE SALES AND TRADING BUSINESSES
      3. OTHER GROUPS
      4. SUMMARY
  9. PART Three - Economics
    1. CHAPTER 12 - Macroeconomics for Trading and Sales
      1. INTRODUCTION
      2. CAPITAL ASSET PRICING MODEL (CAPM)
      3. OVERVIEW OF MACROECONOMICS
      4. THE FED
      5. MOVING BEYOND THE BIG THREE: OTHER MACROECONOMIC CONCEPTS
      6. OTHER VARIABLES
      7. A FINAL OBSERVATION
      8. SUMMARY
    2. CHAPTER 13 - Economic Data Releases
      1. INTRODUCTION
      2. PRELIMINARY DEFINITIONS
      3. PRINCIPAL U.S. ECONOMIC INDICATORS
      4. REST OF THE WORLD ECONOMICS
      5. EUROPE
      6. EUROPEAN ECONOMIC STATISTICS
      7. THE MARKET’S REACTION FUNCTION
      8. WHAT THE MARKET TELLS US ABOUT THE ECONOMY
      9. SUMMARY
  10. APPENDIX - Mathematical Review
  11. Notes
  12. About the Author
  13. Index