trading securities

Question 1

what are the 4 secondary trading markets?

Answer 1

• exchanges
• over the counter
• third market
• fourth market

Question 2

describe exchange trading

Answer 2

• listed securities
• trade at physical location
• trade on an auction market

Question 3

describe over the counter trading

Answer 3

• not listed securities
• no physical location
• trading is negotiated between buyer and seller

Question 4

describe third market trading

Answer 4

• listed securities traded OTC
• no physical location
• trading is negotiated between buyer and seller

Question 5

describe fourth market trading

Answer 5

• listed and unlisted securities
• direct trading between financial institutions
• use ECNs to trade

Question 6

describe dark pool trades

Answer 6

• private trading done on the fourth market after hours by institutions
• instinet

Question 7

what are two types of ECNs

Answer 7

• superdot - nyse

- instinet - 4th market institutions

Question 8

describe floor brokers

Answer 8

broker working for an individual broker/dealer on the exchange floor

Question 9

describe two-dollar brokers

Answer 9

employees of nyse who help other brokers on floor and charge fees for their assistance

Question 10

describe a specialist

Answer 10

designated market maker (DMM)

• buy and sell to make market move
• maintains fair and orderly market
• provide liquidity

Question 11

what is a market order

Answer 11

are orders that are executed immediately at best available price

Question 12

market orders are guaranteed to be ___, ___ is not guaranteed.

Answer 12

• filled

- price

Question 13

what order are market orders filled?

Answer 13

1st-priority-time
2nd-precedence-size
3rd-parity-heads or tails

Question 14

when are limit orders executed?

Answer 14

they are executed at a specified price or better

Question 15

describe a buy limit

Answer 15

buy for $20 or better

• entered below CMV
• no fill guarantee

Question 16

describe a sell limit

Answer 16

sell for $20 or better

• entered above CMV
• no fill guarantee

Question 17

purpose of stop orders

Answer 17

• provide protection

- limit losses (called “stop loss” orders)

Question 18

describe buy stop orders

Answer 18

buy @ 35 stop

• triggered @ 35
• become market order and executed at next price
• entered above CMV
• PROTECTS SHORT POSITION

Question 19

describe sell stop orders

Answer 19

• sell @ 35 stop
• triggered @ 35
• become market order and executed at next price
• entered above CMV
• PROTECTS LONG POSITION

Question 20

describe buy stop limit orders

Answer 20

• buy @ 25 stop limit 26
• 25 if trigger price
• order will be filled at 25 but not more than 26
• entered above CMV

Question 21

describe sell stop limit orders

Answer 21

• sell @ 25 stop limit 24
• 25 is trigger price
• order will be filled at 25 but no less than 24
• entered below CMV

Question 22

cheat for remembering if orders are filled above or below the CMV

Answer 22

SLoBS
BLiSS

sell limits and buy stops
buy limits and sell stops

Question 23

describe day orders

Answer 23

cancel any unexecuted portion at end of the day

Question 24

describe GTC (good till cancelled) orders

Answer 24

any unexecuted portion remains working until the last trading day of April or October

Question 25

describe Fill or Kill (FOK) orders

Answer 25

entire order executed immediately or entire order is cancelled

Question 26

describe immediate or cancel (IOC) orders

Answer 26

- execute any portion available immediately | - cancel any balance remaining

Question 27

describe all or none (AON) orders

Answer 27

- execute all if available | - become a GTC order if not all of order can be filled

Question 28

describe market at open orders

Answer 28

- execute orders at or near the open of the day | - not guaranteed exact opening price

Question 29

describe market at close orders

Answer 29

- execute orders at or near the end of the day | - not guaranteed exact closing price

Question 30

describe market not-held orders

Answer 30

held by floor broker having time and price authority | -order not guaranteed

Question 31

specialists (DMM) order display books contain?

Answer 31

- limits (high bid price/low ask price) | - stops and stop limits

Question 32

describe the 3 market halts

Answer 32

based on declines in the S&P 500 - level 1-7% decline = 15 min halt - level 2-13% decline = 15 min halt - level 3 -20% decline = market done for day

Question 33

what kind of securities trade OTC?

Answer 33

- unlisted stocks and bonds - govt securities - municipal securities

Question 34

describe principal market makers

Answer 34

- maintain inventory - maintain liquidity - mark up or down - charges not disclosed

Question 35

describe agents as a non-market makers

Answer 35

- represents clients - charge commission - charges are disclosed

Question 36

describe the markup policy

Answer 36

usually 5% - guide for listed and unlisted transaction charges - markup policy can vary depending on the effort used to finalize deal