Trading Securities Flashcards
(32 cards)
GTC Order
“Good ‘Til Cancel” - specifying that the order remains active until canceled (beyond one day).
Market Order
Will guarantee that the investor’s order is executed as soon as it is presented to the market. It guarantees the execution but not the price at which the order will be executed. As such, the investor does not know the exact price at which the order will be executed.
Buy Limit Order
Sets the maximum price that the investor will pay for the security. The order may never be executed at a price higher than the investor’s limit price. Although this guarantees that the investor will not pay over a certain price, it does not guarantee them an execution. If the stock continues to trade higher away from the investor’s limit price, the investor will not purchase the stock and may miss a chance to realize a profit.
Sell Limit Order
Sets the minimum price that the investor will accept for the security. The order may never be executed at a price lower than the investor’s limit price. Although a sell limit order guarantees that the investor will not receive less than a certain price, it does not guarantee them an execution. If the stock continues to trade lower away from the investor’s limit price, the investor will not sell the stock and may miss a chance to realize a profit or may realize a loss as a result.
Stop Order / Stop Loss Order
Used by investors to limit or guard against a loss or to protect a profit. Will be placed away from the market in case the stock starts to move against the investor. It is not a live order, it has to be elected. Is elected and becomes a live order when the stock trades at or through the stop price. The stop price is known as the trigger price. The order then becomes a market order to either buy or sell the stock depending on the type of order that was placed.
Buy Stop Order
Placed above the market and is used to protect against a loss or to protect a profit on a short sale of stock. Could also be used by a technical analyst to get long after the stock breaks through resistance.
Sell Stop Order
Placed below the market and is used to protect against a loss or to protect a profit on the purchase of a stock. A sell stop order also could be used by a technical analyst to get short the stock after the stock breaks through support.
Stop Limit Order
Used for the same purpose as a sell stop order. Only difference is that once the order has been elected, the order becomes a limit order instead of a market order. If the stock continues to trade away from the investor’s limit, they could give back all of their profits or suffer large losses.
All or None Order (AON)
May be entered as day orders or GTC. Indicate that the investor wants to buy or sell all of the securities or none of them. AON orders are not displayed in the market because the required special handling and the investor will not accept a partial execution.
Immediate or Cancel Order (IOC)
The investor wants to buy or sell whatever they can immediately and whatever is not filled is canceled.
Not Held Order (NH)
The investor gives discretion to the floor broker as to the time and price of execution. All retail not held orders given to a representative are considered day orders unless the order is received in writing from the customer and entered GTC.
Market Open / Market Close Order
The investor wants their order executed on the opening or closing of the market or as reasonably close to the opening or closing as practical. If the order is not executed, it is canceled.
Fill or Kill Order
The investor wants the entire order executed immediately or the entire order is canceled.
Priority of Exchange Orders
Orders that are routed to the trading post for execution are prioritized according to price and time. If the price of more than one order is the same, orders will be filled as follows. Priority: the order that was received first gets filled first. Precedence: if the time and price are the same, the larger order gets filled. Parity: If all conditions are the same, the orders are matched in the crowd and the shares are split among the orders.
The Role of the Designated Market Maker (DMM)
The DMM is an independent exchange member who has been assigned a stock or group of stocks for which they are the designated market maker (DMM). They are responsible for maintaining a fair and orderly market for the securities, buying for their own account in the absence of public buy orders, selling from their own account in the absence of public sell orders, acting as an agent by executing public orders left with them. Most DMMs are employees of specialist firms. Every transaction for a security that is executed on an exchange must take place in front of the DMM.
Crossing Stock
A floor broker from time to time may get an order from both a buyer and a seller in the same security. The floor broker may be allowed to pair off or cross the orders and execute both orders simultaneously. In order for the floor broker to cross the stock, the DMM must allow it and the floor broker must announce the orders in an effort to obtain price improvement for the orders. The floor broker must offer the stock for sale at a price above the current best bid and may purchase the stock using the buy order if no price improvement has been offered. This then will complete the cross and both orders will be filled.
Stopping Stock
As a courtesy to a public customer, a DMM may guarantee an execution price while trying to fid an improved or better price for the public customer.
Commission House Broker
A commission house broker is an employee of a member organization and will execute orders for the member’s customers and for the member’s own account.
Two-Dollar Broker
A two-dollar broker is an independent member who will execute orders for commission house brokers when they are too busy managing other orders.
Registered Traders
A registered trader is an exchange member who trades for their own account and for their own profit and loss. Order may not originate on the floor of the NYSE. A supplemental liquidity provider/SLP is an off-the-floor market maker that directs orders to the floor of the NYSE for its own account. The SLP may compete with the DMM for order execution and must display a bid or offer at least 5% of the time. The SLP will receive a rebate from the NYSE when an order is executed against the SLP’s quote that added liquidity to the market. Allied members of the NYSE are given direct phone and electronic access to the trading floor but may not trade on the floor itself.
Regulation of Short Sales/Regulation SHO
The SEC continues to adopt new rules relating to the short sale of securities. Regulation SHO has been adopted to update prior short sale regulations and covers: definitions and order marking, suspension of uptick and plus bid requirements, borrowing and delivery requirements for securities.
Over the Counter / Nasdaq
Securities that are not listed on any of the centralized exchanges trade over the counter or on the Nasdaq. Nasdaq stands for National Association of Securities Dealers Automated Quotation System. It is the interdealer network of computers and phone lines that allows securities to be traded between broker dealers. Nasdaq is not an auction market but has been granted exchange status by the SEC. It is a negotiated market. One broker dealer negotiates a price directly with another broker dealer. None of the other interested parties for that particular security have any idea what terms are being proposed. The broker dealers may communicate over their Nasdaq workstations or can speak directly to one another over the phone.
Market Makers
Because there are no specialist for the over-the-counter markets, bids and offers are displayed by broker dealers known as market makers. A market maker is a firm that is required to display a two-sided market. A two-sided market consists of a simultaneous bid and offer for the security quoted through the Nasdaq workstation. The market maker must be willing to buy the security at the offering price, which they have displayed. These are known as firm quotes. Market makers purchase the security at the bid price and sell the security at the offering price.
Nasdaq Quotes
Most actively traded Nasdaq stocks are quoted by a large number of market makers. As market makers enter their quotes, some will be above or below the inside market. A market maker whose quote is above or below the inside market is said to be away from the market. As the market makers adjust their quotes, the market maker who is publishing the highest bid for the security has their bid displayed at the top of the list and their bid is published as the best bid to anyone with a Nasdaq Level I subscription. The market maker publishing the lowest offer will have their offer listed at the top of the list and published as the lowest offer to anyone with a Nasdaq Level I subscription. As a result, the best bid and offer from any two market makers will make up the inside market.
