Series 6 Lesson 12 Secondary Markets

Series 6 Lesson 12 Secondary Markets is this podcasts subject. The secondary market is for people to buy and sell securities to each other. The “first market” they are sold at is called the auction market. The main part of this is the New York Stock Exchange (NYSE), but there are also regional exchanges in Chicago, Boston, Philadelphia and San Francisco.

The second market is known by the names Over the Counter Market (OTC) or the negotiated market. This market shares round lots of 100 shares of stock and is done at individual computers and devices instead of a physical building.  NASDAQ is one such market. If a stock does not trade on NASDAQ, it will not be as liquid or desirable.

The 3rd market is when there is an OTC transaction of a NYSE-listed security.

The 4th market is direct institutional trading.

GDP is the gross domestic product or the total output of the economy. If it is increasing, the economy is growing and vice versa.  The economy goes through a series of growing and shrinking actions called the business cycle: expansion, peak, contraction, trough, recovery.  A downward turn is known as a recession, and a longer recession becomes a depression.

Inflation is when prices rise too quickly. It is measured by the consumer price index, (CPI) which surveys prices customer are paying for common goods, such as groceries, gas, and clothing and compares them.  This is known as “too many dollars chasing too many goods”.

The opposite of inflation is deflation where goods become too cheap and businesses cannot make a profit.

The Federal Reserve Board is always raising and lowering the interest rate in order to grow or shrink the economy as a way to keep it closer to a state of balance. This is known as monetary policy. They can also change the reserve requirement, which is the amount of money that banks are required to keep in reserve. This changes the amount of money that banks have available to lend, etc. They can also change the discount rate, which is the rate that the Federal Reserve charges to banks that borrow from it. Banks lends money to each other at the fed funds rate. The banks will then pass the higher or lower costs to their customers.

Fiscal policy refers to what the President and Congress do to affect the economy. To grow the economy, they can cut taxes and increase government spending. If they want to shrink the economy, they can increase taxes and cut government spending.

The Call money rate is the rate broker-dealers pay when borrowing money on behalf of their margin clients.

The prime rate is the rate at which the best qualified corporate clients get when borrowing money.

There are certain ways to invest that are known as tax advantaged. These are often used for retirement savings. Taxes usually eventually come due, but they can be deferred for a long time.

For profit companies offer 401k plans and schools/charities offer 403b plans. It is a tax-sheltered annuity. They indicate how much of their paycheck should go into the account. It gives you a tax break now and saves for retirement later. The employer usually matches the contribution up to a certain amount.

One type is called an IRA or Individual Retirement Account. There are several kinds of these.

A traditional IRA can be contributed to by anyone who is 70.5 years old or younger. You can put up to 100% of your earned income into the account. If you are past 50, you can contribute more. Contributions are pre-tax, which means that they are tax deductible from your income, which reduces the burden.

If you take out money from your IRA before 50.5 years old, you will take a 10% penalty. There is also a penalty of 6% if you overfund your IRA.

A Roth IRA is made with after-tax, non-deductible contributions. The money comes out tax free after age 59.5 and you have had the account for at least five years. If your income gets over a certain threshold,