Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1999-02-08
2001-08-07
Downs, Robert W. (Department: 2165)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
C705S035000, C705S03600T
Reexamination Certificate
active
06272474
ABSTRACT:
This invention relates to methods for dealing in the stock market and in particular to such methods involving the monitoring of stocks on the Internet.
BACKGROUND OF THE INVENTION
Investment Strategy
The best technique for making money in the stock market can be summed up in four small words: buy low, sell high. A successful investor is someone who can buy low and sell high enough so that he comes out ahead at the end of his transactions. There are three basic investment strategies to which investors commonly subscribe in their efforts to try to buy low, sell high: (1) pure fundamental analysis, (2) pure technical analysis, and (3) a combination of fundamental and technical analysis.
Fundamental Analysis Strategy
Otherwise known as the value method of investing, a fundamental analysis strategy is the investment in stocks on the basis of the value of the companies represented by the stocks. The company's balance sheet, income statement, and the like, are studied to help determine the financial and market position of the company. If the analysis of the company's historic growth and profit patterns show a steadily growing organization, and the research of the organization and its markets show a company that is competent and sound, a fundamental analysis approach should conclude that the company will continue to grow and prosper in the future.
Technical Analysis Strategy
The technical analysis strategy is a favorite of market timers. These are investors who try to make profits based on the short-term swings of the market. Market timers range from day traders, who try to take advantage of hourly or daily price changes to make a profit, to slightly longer-term investors who track stock price and trading volume fluctuations over a period of a few days or weeks and trade on the basis of recent trends. As opposed to fundamental analysis where the emphasis is on the strength of the underlying corporation, technical analysis focuses on patterns that appear on the historical price charts of a specific stock and of the stock market in general in order to help predict the future of that stock's price. This strategy is based on the theory that certain patterns of stock prices tend to repeat themselves over time.
Combination Fundamental and Technical Analysis Strategy
A third investment strategy combines elements of both fundamental and technical analysis. An investor following this strategy will research companies until he finds one that he feels is competent, sound and looks like it will continue to prosper in the future. However, before buying stock in it, he will look at historic price charts to help him determine the best moment to buy. Based on the price chart, the investor may decide to wait a few days, weeks or months before buying the stock.
The Internet
The Internet is a large connection of interconnected computers. Initially developed by the United States Defense Department, it has recently expanded to a great variety of uses and is growing rapidly. A significant percentage of the population in the United States and in many other countries currently has access to the Internet and uses it frequently. Internet users continue to grow rapidly.
Many companies have web sites and encourage potential customers to visit these sites. Creation of web sites is a well-developed Internet business with many people and organizations offering to create web sites. In addition, many books are available providing instructions for individuals to create their own web sites.
Web site owners use their web sites for varying purposes. Some of these purposes include advertising products or services, providing information, or for selling products or services. More specifically, in recent years the Internet has become a major means by which investors and brokers can both monitor the stock market and buy and sell stocks.
How the Internet Helps the Investor
Although an investor does not need to be online to buy stocks, the Internet can be of great value to him. The Internet offers resources that are unmatched by any single print source. A wired investor can get access to literally thousands of investment services, publications, newsletters, and discussion groups from the comfort of his living room or office. In this manner an investor can quickly gather a large amount of information about companies in which he is interested.
The Agents
Market Makers, Specialists and Electronic Communication Networks
Market makers, specialists and Electronic Communications Networks (ECNs) make market in stocks. Market makers are part of the National Association of Securities Dealers market (NASD), and specialists work on the New York Stock Exchange (NYSE) and other listed exchanges. An ECN is an electronic board where buy and sell orders may be posted by any investor worldwide. These agents serve a similar function but there are a number of differences between them.
Specialists
The New York Stock Exchange (NYSE) is the oldest stock exchange in the United States. The NYSE (as well as the Philadelphia, Chicago, Boston, and Pacific Stock Exchanges) uses an agency auction market system that is designed to allow the public to meet the public as much as possible. The majority of trading volume (approximately 90%) occurs with no intervention from the dealer. The responsibility of specialists is to make a fair and orderly market in the issues assigned to them. They must yield to public orders which means they may not trade for their own account when there are public bids and offers better than their own. The specialist has an affirmative obligation to eliminate imbalances of supply and demand when they occur. Specialists are required to make a continuous market. The exchange has strict guidelines for trading depth and continuity that must be observed. Specialists are subject to fines and censures if they fail to perform this function. NYSE specialists have large capital requirements and are overseen by Market Surveillance at the NYSE.
A specialist will typically maintain a narrow spread between offers to buy and offers to sell. Generally, the trader will need access to a professional's data feed before the trader can really see the size of the spread.
There are over a thousand NYSE members (i.e., seats), of which approximately a third are specialists. To date, there are over 3000 common and preferred stocks listed on the NYSE. On the average, each specialist handles 6 issues. The very big stocks will have a specialist devoted solely to them.
Every listed stock has one firm assigned to it on the floor. Most stocks are also listed on regional exchanges in San Francisco, Chicago, Philadelphia and Boston. All NYSE trading (approximately 80% of total volume) will occur at that post on the floor of the specialist assigned to it.
Market Makers
NASDAQ is an abbreviation for the National Association of Securities Dealers Automated Quotation system. The NASDAQ market is an interdealer market represented by over 600 securities dealers trading more than 15,000 different issues. These dealers are called market makers. Unlike the New York Stock Exchange (NYSE), the NASDAQ market does not operate as an auction market. Instead, market makers are expected to compete against each other by posting the best quotes (best bid, i.e., best offer to buy, and best ask, i.e., best offer to sell).
A NASDAQ Level II quotation system shows all the bid offers, ask offers, size of each offer (the order size), and the market makers making the offers. The order size is simply the number of shares the market maker is prepared to fill at that price. Since about 1985 the average person has had access to Level II quotes.
The Small Order Execution System (SOES) was implemented by NASDAQ following the 1987 market crash. This system is intended to help the small investor have his or her transactions executed without allowing market makers to take advantage of said small investor. The trader may see mention of “SOES Bandits” which is slang for people who day-trade stocks on the NASDAQ using the SOES, scalping profits on the spreads.
A firm can become a marke
Downs Robert W.
Ross John R.
Ross, III John R.
Wasylchak Steven R
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