Secondary Market Chapter 7 Flashcards
Auction Market
Stocks that are listed are considered securities ( Stock Market )
Negotiated Market-
Unlisted stocks are considered OTC- Over the Counter stocks. People who distribute OTC are called Market Makers. A OTC market is called a Negotiated Market
NASDAQ Capital Market
Small Cap
NASDAQ Global Market NMS
Large Cap
Third Market
Listed Stocks traded in OTC market by market-makers
Fourth Market
Institutions trading directly with other institutions without a broker or an exchange.
Such as insurance companies with other insurance companies.
ECNs
Electronic Communication Networks
private execution systems-
Instinet -INET
B-Trade
ECNS are not exchanges, not market makers
DO NOT work from their own inventory
BASICALLY, SEARCHING for best price for a stock, less than a second
Fast computers systems – used for execution
NSCC
National Securities Clearing Corporation
Clears and settles trades
Mutual Funds DO NOT trade in the secondary market
issue only redeemable shares
Market Order
is an order to buy or sell a security at the best price available when the order reaches the marketplace.
Market orders entered at the opening on an exchange always have priority over limit orders.
Limit Order
is an order to buy or sell a security at a SPECIFIC PRICE or better. Limit orders can be identified as either:
Good for the day Orders (DAY)-
order expires on the day it is entered, unless executed.
If partially executed the remainder of the order will be canceled at the end of the day.
If changed, it will lose its position in the designated market makers book
Good till canceled(GTC)-
the order remains in effect until it is executed or canceled and is also called an open order.
-GTC orders are renewed twice a year in April and October
Some firms may allow GTC orders to be entered as good for the week or good for the month
Permitted round and odd lots
If properly renewed, it maintains its position in the Designated Market Maker’s Book
Good for the week/month orders must be canceled by the member firm, not the customer, Designated Market Maker or floor broker.
Stop Order
will protect a profit or limit losses on an existing position but cannot assure a specific price of execution.
Once executes turns into a Market order.
Long position- using a sell stop order
Short position- using a buy stop order
Sell Limits and Buy Stops
SL/BS- always entered ABOVE the current market price.
SL/BS- remember the word SLIBS ( above market price)
Buy Limits and Sell Stops
BL/SS. -always entered BELOW the current market price.
BL/SS- remember the word BLISS( below market price)
Example Stock trading @ 50. Don’t want to pay more than 48 dollars a share or lower
You could put in a Buy Limit order @ 48. Once price hits price, order is executed.
Example Bought stock @ 48. Resistance level is 60. Want to sell before downturn so you could put in a SELL LIMITorder @60.
Purchased stock @ 40, price has risen to 50.
To protect your profit, you could enter a SELL STOP ORDER @49.
If the price declines to 49 or lower, your order would become a market order.
SELL STOP ORDER is used to protect a LONG POSITION OR PROFIT.
Example You sold stock short @30, the market price has gone to 20.
You could put in a BUY STOP @ 21 to protect your gain.
BUY STOP ORDER is used to protect a short stock position or profit.
If the market goes to 21 or higher, the order would become a market order, buying
to cover.
ADJUSTMENT ORDERS
If an adjustment is required for cash dividends or distributions: unless marked “ DO NOT REDUCE” Buy limit and Sell Stop open orders prices will be reduced by the full dollar amount of the dividend or distribution.
Open Orders( Buy/Sell) Subject of a reverse split, require that all open orders must be canceled.
Government Bonds being AUCTIONED
T+3 plus business days
