Exchanges Flashcards
(12 cards)
NASDAQ Level I
Level I access provides subscribers with the highest bid and the lowest offer, which is also known as the inside market, for a security that has at least two market makers. This level, however, does not list the actual market makers. Level I is typically used by the branch offices of member firms. The inside market represents the highest price at which a market maker will buy stock (the best bid for a customer selling) and the lowest price at which a market maker will sell stock (the best offer for a customer buying).
NASDAQ Level II
Level II access provides the bids, offers, and quotation sizes for all market makers that enter quotes for each security.
NASDAQ Level III
Level III access is exclusive to a market maker in the Nasdaq system. It allows the market maker to enter and update their bids and offers for the securities for which the firm is authorized to enter quotes. Quotations entered using Level III appear on the system immediately.
Regulation NMS
The National Market System was created by the SEC in an effort to modernize the U.S. market for trading equity securities. The regulation attempts to facilitate linked trading among the competing venues with the goal of providing customers with fair and liquid markets.
The Dow Jones Averages
The Dow Jones Averages are the most widely quoted measurements of the stock market. The Dow Jones Composite Average consists of 65 stocks and is broken down into the following three sub-averages:
• Dow Jones Industrial Average - consisting of 30 stocks
• Dow Jones Transportation Average - consisting of 20 stocks
• Dow Jones Utility Average - consisting of 15 stocks
The Bond Buyer
The Bond Buyer is the online newspaper of the municipal industry that contains news that’s pertinent to both the municipal market and the financial community in general. It also contains announcements such as notices of sale, call notices, and a new issue calendar.
The Short Interest Theory
Short interest refers to the amount of a company’s common stock that’s
been sold short, but has not yet been covered (closed out). Periodically, the NYSE and the Nasdaq Market System compile a list of various companies’ short interest.
Although it may appear that an increase in short interest from one month to another is a bearish indicator, those who follow the short interest theory normally consider rising or large short interest to be a bullish indicator. According to the short interest theory, short sellers must eventually cover their short sales and, as they purchase the stock, it will cause the market price to increase. Other short sellers, fearing future increases in the stock’s price, will cover their short sales and create additional upward pressure on the stock (commonly referred to as a short squeeze).
Put/Call Ratio
The put/call ratio is a technical market indicator that’s found by dividing the volume of all put transactions by the volume of all call transactions on a daily basis. High ratio is bullish, and low ratio is bearish.
The Short Interest Theory
Short interest refers to the amount of a company’s common stock that’s
been sold short, but has not yet been covered (closed out). Periodically, the NYSE and the Nasdaq Market System compile a list of various companies’ short interest.
Although it may appear that an increase in short interest from one month to another is a bearish indicator, those who follow the short interest theory normally consider rising or large short interest to be a bullish indicator. According to the short interest theory, short sellers must eventually cover their short sales and, as they purchase the stock, it will cause the market price to increase. Other short sellers, fearing future increases in the stock’s price, will cover their short sales and create additional upward pressure on the stock (commonly referred to as a short squeeze).
The Advance-Decline Theory
Advance-decline figures measure the number of stocks that have increased compared to the number that have decreased during a trading session or other period. This data, which is intended to show the direction of the market as well as the breadth of a market movement, is published daily.
The Random Walk (Efficient Market) Theory
The Random Walk Theory states that security analysis doesn’t produce investment recommendations that will allow investors to consistently outperform a randomly selected portfolio. Therefore, a professionally managed portfolio will perform just as well as a portfolio that’s selected in a non-discriminatory fashion (e.g., throwing darts at a newspaper listing of stock prices).
The Dow Theory
The Dow Theory attempts to determine changes in the underlying trend of the market. Historically, Dow theorists have looked to the Dow Jones Averages for this information.
According to this theory, a major trend is confirmed only when both the Dow Jones Industrial Average and Dow Jones Transportation Average reach a new high or new low. Without this confirmation, the belief is that the market will drift back to its previous trading pattern.
