Trading Basics Flashcards by Isaac Kerry

First Market

Trading on exchange floors

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What are the 5 regional exchanges?

Chicago
Pacific
Philadelphia
Boston
Cincinnati

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CQS

Consolidated Quotations Service; provides current price quotes for NYSE and NYSE-MKT securities

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Network A Tape

CQS feed that reports NYSE issues

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Network B Tape

CQS feed that reports NYSE-MKT issues; also reports regional exchange trades

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Network C Tape

NASDAQ issues

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Second Market

Over the counter

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OTCBB

Over the Counter Bulletin Board; displays quotes for companies not on exchanges

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Pink OTC Markets

speculative stocks & delisted companies; also some foreign companies

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Third Market

OTC trading of exchange listed securities

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Benefits of third market

Compete with exchanges; offer competitive prices and are open 24hrs

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Payment for order flow

Portion of payment for a trade returned to buyer

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Fourth Market

direct trading of securities between institutions

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ECN

electronic communications networks; match buy and sell orders 24/7

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Regulation ATS

Required ECNs to register with SEC as brokers; if market share is > 5% for a security must also publicly display orders

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Regulation NMS

National Market Securities; set of rules that govern securities trading

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Rule 602

Exchanges must collect and display bids and offers

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Rule 604

Limit Order Display Rule; exchanges must display all orders so the best price is seen

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Rule 605

Market Center Order Execution Report; requires monthly report that summarizes order execution

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Rule 606

Requires firms to report to customers the details of order routing and payment for order flow

Rule 607

Requires firms to notify customers of order flow policies

Rule 611

Requires that exchanges execute a trade at the best price across all markets that issue is tradign

Trade Through

when a trade is completed at an inferior price; unlikely to happen now due to electronic trading and rule 611

Rule 610

Requires exchanges to offer automatic execution of trades and the same speed of trading to all users

Rule 612

no sub-penny quotes on NMS stocks trading at $1 or more

Sub-penny quotes

ECN allow quoting stocks in sub-penny increments; creates hidden market

What is a dealers spread?

Difference between bid (what they will buy at) and ask (what they will sell at) prices

Specialist/DMM

5 specialist firms handle act as dealers for all NYSE issues; also called DMMs: Designated Market Makers

NYSE vs NASDAQ dealers

NYSE: 5 specialist firms act as dealers for all issues, cannot deal with public NASDAQ: multiple competing market makers, can work directly with public

How do dealers work on the second market?

Second market prices are negotiated due to no centralized electronic quote resource

How do brokers make money?

Via commission

How do dealers make money?

Via mark-up

Regulation SHO

Covers short sales; requires that a broker must have shares on hand to cover the short sale

GTC

Good til cancelled; most orders cancelled at the end of the day if not fulfilled; customer can indicate GTC in which case the order stays in the system

AON

All or none: either entire order is filled or nothing; trader is free to attempt again later

FOK

Fill or kill; order filled on the first try or not at all

IOC

Immediate or Cancel: part of all of the order is filled on the first try or is cancelled

Not held

Tells the trader to determine when to make the trade if they think a better price will happen later in the day

Limit order

specifies a price that is to be hit when selling or buying an order

Market Order

filled immediately at market price

Open Buy Stop

Says to buy a stock at a certain price, but does not trigger until that price is reached. Allows a buy order to be placed above the market rate to hedge a short stock position

Open Sell Stop

Says to sell a stock at a certain price, but does not trigger until that price is reached. Allows a sell order to be placed below the market rate to hedge a long stock position

Open Buy Limit

Says to buy a stock if the market falls to a certain limit

Open Sell Limit

Says to sell a stock if the market rises to a certain limit

What is resistance level?

The price a stock seems to hit that triggers investors to sell their shares

Is a breakout of the resistance level bullish or bearish?

Bullish because it indicates that there are more buyers than sellers

What is the support level of a stock?

The price a stock hits that triggers investors buying it

Is a breakout of the resistance level bullish or bearish?

bearish because it indicates there are more sellers than buyers

UQDF

UTP Quote Data Feed; displays NASDAQ quotes