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Asset Exam 2 > Chapter 3 (Securities) > Flashcards

Chapter 3 (Securities) Flashcards

1
Q

Algorithmic Trading

A

The use of computer programs to make rapid trading decisions.

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2
Q

What is the Ask Price

A

The price at which a dealer or other trader will sell a security.

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3
Q

Auction Market

A

A market where all traders meet at one place to buy or sell an asset.

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4
Q

Bid-Ask Spread

A

The difference between the bid and asked prices.

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5
Q

Bid Price

A

The price at which a dealer or other trader is willing to purchase a security.

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6
Q

Blocks

A

Large transactions in which at least 10,000 shares of stock are bought or sold.

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7
Q

Dark Pools

A

Electronic trading networks where participants can anonymously buy or sell large blocks of securities.

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8
Q

Dealer Markets

A

Markets in which traders specializing in particular assets buy and sell for their own accounts.

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9
Q

Electronic Communication Networks (ECNs)

A

Computer networks that allow direct trading without the need for market makers.

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10
Q

Define High-Frequency Trading

A

A subset of algorithmic trading that relies on computer programs to make very rapid trading decisions.

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11
Q

What is the Initial Public Offering (IPO)

A

First sale of stock by a formerly private company.

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12
Q

Define Inside Information

A

Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm.

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13
Q

What is Latency

A

The time it takes to accept, process, and deliver a trading order.

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14
Q

What is a Limited Buy (Sell) Order

A

An order specifying a price at which an investor is willing to buy or sell a security.

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15
Q

Define Margin

A

Describes securities purchased with money borrowed in part from a broker. The margin is the net worth of the investor’s account.

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16
Q

What is the NASDAQ Stock Market

A

The computer-linked price quotation and trade execution system.

17
Q

What is the Over The Counter (OTC) Market

A

An informal network of brokers and dealers who negotiate sales of securities.

18
Q

What is the Primary Market

A

Market for new issues of securities.

19
Q

Define Private Placement

A

Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors.

20
Q

Define Prospectus

A

A description of the firm and the security it is issuing.

21
Q

What is the Secondary Market

A

Market for already-existing securities.

22
Q

Define a Short Sale

A

The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan.

23
Q

What is a Specialist

A

A trader who makes a market in the shares of one or more firms and who maintains a “fair and orderly market” by dealing personally in the market.

24
Q

What are Stock Exchanges

A

Secondary markets where already-issued securities are bought and sold by members.

25
Q

Define Stop Order

A

Trade is not to be executed unless stock hits a price limit.

26
Q

What are Underwriters?

A

Underwriters purchase securities from the issuing company and resell them to the public.

27
Q

What are some characteristics of IPO’s

A
  • At first they are underpriced

- They are sold in the primary market to institutional clients

28
Q

Why do firms issue stock?

A
  • Private company needs investment capital
  • Owner wishes to diversify wealth
  • Private investors/venture capitalist want to cash out
  • Private owner thinks more valuable public than private
  • Existing public firm wants more equity capital
29
Q

What does a stock investor get?

A
  • Some voting rights for board of directors

- gives rights to dividends

30
Q

What is the Boards dooties?

A
  • The board provides oversight

- Ensures that the managers look out for interests of shareholders

31
Q

What are the types of orders for securities?

A
  • Market Order- Execute immediately at best price

- Price-Contingent Order- Buy/Sell at a specified price of better

32
Q

Explain a Market Order.

A
  • Execute immediately at best price
    • Bid Price: price at which dealer will buy security
    • Ask Price: price at which dealer will sell security
33
Q

Explain a Price-Contingent Order.

A
  • Buy/Sell at a specified price of better
    • Limit buy/sell order: specifies price at which investor will buy/sell
    • Stop order: not to be executed until price point hit

Asset Exam 2 (6 decks)

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