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Trade Paper, Trader, Trader's Market, Trading Account Securities and Trading Market
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)


Notes or trade acceptances given rather than money in exchange for merchandise; BUSINESS PAPER.


A person who engages in speculation, buying and selling securities or commodities for price appreciation; a person who executes orders of others on the floor of an exchange or who, among dealers in unlisted securities, maintains a position or inventory in assigned stocks and engages in buying and selling operations in such stock.


In unlisted securities trading, the inside market, or that market with the closest spreads between bid and asked prices, maintained for trading between firms and not for the public.  Traders' markets are published daily in the National Quotation Bureau's sheets (see NATIONAL QUOTATION BUREAU).  Quotations released through regional offices of the NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. to the press reflect approximate quotations for the public.  Necessarily, spreads in quotations for the public must allow for the expense of maintaining facilities for the public.  Traders' markets may be likened to wholesale prices, while public quotations are retail prices.


Securities acquired with the intention of selling them within a short period of time, as opposed to investment account securities.  The Glass-Steagall Act restricts banks' securities trading but does not prohibit trading Banks can underwrite debt obligations of the United States and general obligations of states or political subdivisions.  They can also purchase securities for the customer accounts and for the bank's own account.  A bank's trading activities and trading department are normally kept separate from its other investment activities and departments.  Banks generate income from trading activities by commissions on transactions and by profits on transactions in trading securities.  The Federal Deposit Insurance Corporation has concluded that certain transactions should be included in the trading account and not the investment account:  when-issued securities trading, pair-offs, gains trading, corporate settlement on U.S. government and federal agency securities purchases, and short sales.  The FDIC maintains that purchases of stripped mortgage-backed securities, residuals, and zero-coupon bonds may be unsuitable for the investment portfolio.


A narrow, dull, inactive market in which prices cover the same ground over and over; a market in which public participation is negligible, transactions being largely confined to those of professional traders, and therefore sometimes called a professional market.  A trading market is a preparatory, hesitating condition preceding an impending movement upward or downward.  In a trading market the range of stocks is kept within a few points, and the trading area is a small range between the limits of which the movement of prices is confined.

A trading market is a period of vacillation occurring at the conclusion of a decisive upward or downward swing.  Preparatory to the next swing, prices vibrate within a narrow range, the amplitude of fluctuations demarking the limits of the trading area.  It is a time of suspended judgment - a speculative question mark - and may be conceived of as a prolongation of a pause to permit digestion of the preceding move, while speculators wait for additional facts to provide an impetus for a fresh start in one direction or the other.

Referring solely to the movements of the averages, a trading area on a high plateau in a bull market almost invariably is an interlude in what later proves to be a resumption of the rise, or else the energy required to hold prices within the area would not have been expended.  The technical rule is that the line of least resistance is motion, and stocks having risen to a temporary apex would be more apt to round off and with little hesitation start downward.  Similarly, a trading area at the bottom of a sharp decline is a breathing space to take account of fundamentals  If the decline has gone too far, recovery, if there is to be one, will lose no time in asserting itself.  Consequently, a trading area following a declining movement is usually the precursor of a resumption of the fall.  Technically, then, a trading area is a compromise, since the rule of motion is violated.

What applies to the averages in regard to trading areas is not applicable to individual stocks.  Frequently, what appears to be a trading area at the bottom of a decline in an individual stock is a zone of  accumulation, with the next important movement upward.  Similarly, the semblance of a trading area in an individual stock on a high plateau frequently turns out to be a level of distribution, with the next move downward.

A trading area offers one type of market situation in which the trader may have his decision made for him with a minimum of risk.  Since a trading area is an interruption of the trend, the market will show, by its own action, what the direction will be when the trading market has terminated.  Just as soon as the averages break out of their trading range in one direction or the other, the action can be followed almost blindly.  Almost invariably, it is a signal for a continuation of that directional change.

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