Money market - GetProfitable

Money markets are where cash is parked and short-term funding is arranged. Instruments are short, high quality and quoted on yields rather than prices, and the whole complex keys off the target-range.

For traders the money market matters because it sets the opportunity cost of cash and the funding cost of leverage. When bill yields exceed the dividend yield of the equity market by several points, marginal money has somewhere else to go.

Example: with the policy rate at 5.33%, a 3-month treasury-bill yields 5.30%, prime commercial-paper 5.45%, and a bank certificate-of-deposit 5.25%. Those few basis points drive trillions in flows.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.

Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.