1 / 12

CHAPTER 3

CHAPTER 3. How Securities are Traded. Securities Markets. Primary market : New issue Secondary market : Existing owner sells to another party Initial Public Offerings Evidence of “underpricing” Subsequent underperformance. Types of Orders.

latika
Télécharger la présentation

CHAPTER 3

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 3 How Securities are Traded

  2. Securities Markets Primary market: New issue Secondary market: Existing owner sells to another party Initial Public Offerings Evidence of “underpricing” Subsequent underperformance

  3. Types of Orders • Market order (MO): buy or sell at the best price now available • Limit order (LO): buy or sell at the stated price or better. Normally, a LO: • To buy is below the market price • To sell is above the market price

  4. Example of Limit Order • You own a stock that is trading at $50. You are willing to buy more at a price of $40 and you are willing to sell at a price of $60. • Enter a LO to buy @ $40. • Enter a LO to sell @ $60. • If the mkt price drops to $40, you will buy, if it increases to $60, you will sell.

  5. Types of Orders: Stop Order • Stop (or stop loss) order: • To sell is normally to close a long position and price is below market. • To buy is normally to cover a short position, and price is above market.

  6. Example of Stop Order • You buy a stock when the price is $50. You are not willing to lose more than $10 per share. • Enter a stop loss order to sell @ $40. If the mkt price drops to $40, it becomes a market order and will be sold.

  7. Order Size • Block trade: 10,000 share minimum • Round lot: 100 shares • Odd lot: less than 100 shares • Block trades account for about 20% of shares traded; odd lot trades are less than 5%.

  8. Trading Mechanisms Dealer markets (NASDAQ) Electronic communication networks (ECNs) Specialists markets (NYSE)

  9. Trading Costs Commission: fee paid to broker for making the transaction Spread: cost of trading with dealer Bid: price dealer will buy from you Ask: price dealer will sell to you Spread: ask - bid Combination: on some trades both are paid

  10. Buying on Margin • Investing on margin is purchasing securities with borrowed funds. • In margin transactions, margin refers to the investor’s equity in the position.

  11. Stock Margin Trading Margin is currently 50%; you can borrow up to 50% of the stock value Set by the FRS Maintenance margin: minimum amount equity in trading can be before additional funds must be put into the account Margin call: notification from broker that you must put up additional funds

  12. Short Sales Purpose: to profit from a decline in the price of a stock or security Mechanics • Borrow stock through a dealer • Sell it and deposit proceeds and margin in an account • Closing out the position: buy the stock and return to the party from which it was borrowed

More Related