6. Recommended marketing and trading process.
Financial markets is the centre of people who want to have capital (in business) and the people who have savings (the investors) to meet together in order to provide funds for those who need such capitals by using official funds as the tool to increase financing channels of the business and to access funding sources easier while adding alternative investments to the investors such as money bill, treasury, shares.
Compare to financing by borrowing from financial institutions and financial markets.
For instance, ABC Company needs to provide funds for expansion while investor B is looking for investment and business channels.
ABC and Investor B can meet demand through two ways as follows.
1. If through financial institutions by the bank or finance company as an intermediary between the capital requirements and the savings.
The ABC business loan three years duration with the bank, the bank interest rate is 7%.
Investor B deposited the money in three years of fixed benefits as brand 3% interest.
As ABC Company have 7% cost, the investor B have 3% returns and difference returns on the intermediary bank was 4%.
2. Through financial markets, by accessing to capital directly the business costs are lower while the investors have the opportunity to receive higher returns than fixed deposit in the bank at the same period.
ABC Company issued financial assets (bonds) Duration: 3 years with 5% interest rate.
Investor B has purchased financial assets (bonds) from ABC Company to receive compensation by 5% as well.
We see that financing through the financial markets without intermediaries, investors may have greater benefits, but it also has greater risk if there is a situation like ABC Company has a business loss, they can not pay interest to investors. The investors will have the risk of missing returns.
Components of Financial Market
Financial markets are included of financial markets and capital markets divided by age based on criteria of financial assets. The derivatives market is a tool in risk management of assets by the following details:
1. Money Market: is a market with short-term trading of financial assets. This means no more than one year instruments such as Treasury, short-term debt, promissory notes, bills of exchange under the age of one year etc.
2. Capital Market: is a market that is traded long-term financial assets. This means more than one year instruments such as bonds, debentures, preference shares etc.
3. Derivatives Market: is a Futures Market Contract used as a tool for risk management of the business and investment. The reference to assets of financial assets is from financial and capital markets.
Recommended capital and derivatives markets
Financial markets, including money and capital markets and derivatives markets. The following are recommended structures of capital markets and derivatives markets, which is an important mechanism of the country’s economy.
Capital markets: are markets that trade long-term financial assets over one year so we can have a Primary market. Primary Market is a market with financial assets of the business by the proceeds from the excess of capital (investors) to expand and operate. The Company will offer shares to the public called the Public Offering, or may be offered to investors of any group or a particular financial institution which is called the Private Placement.
Secondary Market: is a market for transfers of financial assets in the primary market for buying or who have financial assets to be purchased out right, but not in the primary market. They can buy in the secondary market, making a secondary market as the asset trading official sources, such as the Stock Exchange of Thailand silver (SET), MAI, BEX.
Process of trading
Process of trading on the Stock Exchange of Thailand begins from the investors want to buy or sell securities. Investors must make buy/sell orders through its members (or broker) that they are customers of (registered accounts). Then the broker will submit the buy/sell orders to the trading system of The Stock Exchange of Thailand. When commands have been signed, the system will order the list and match the trading according to the defined rules. When the match was already the trading system will confirm the order back to the brokers, and then the brokers will inform back to the investors. The system will report the trading to Securities Depository Company (Thailand) Co., Ltd. to serve as the information in the settlement and deliver the securities on time.
Derivatives trading process
Derivatives trading is the process that are similar to the trade Shares on the Stock Exchange. Starting from when investors want to buy or sell securities. Investors will need to place primary collateral (initial margin) in order to send buy/sell orders through its membership of the derivatives market TFEX (or broker) that investors are customers of (registered account). Then the broker will submit buy/sell orders to the derivatives trading system TFEX which will serve as a center forward match orders with electronic system. When the commands have been signed, the TFEX trading system will be sorted and matching of trading according to the defined rules. When the match was already, the trading system will confirm the order back to the brokers, and then the brokers will inform the investors once again. The system will report trading to a derivatives clearing agency (Thailand TFEX Co., Ltd) for using the information in the settlement and delivery of derivatives on time.
It is also a mark to market the end of every day in case of insufficient collateral, investors need to deposit more.
