LAP: QS-047 How Securities Are Traded

Objectives Describe types of securities trades. Describe the process of securities trading.

Describe types of securities trades. Objective

Basic Securities Trades  Order —instructs your broker to buy or sell for you  Buy order —order to purchase a security  Sell order —order to sell a security you own

Types of Orders A buy or sell order to be executed immediately at the best available price Executed quickly Low commissions A buy or sell order to be executed immediately at the best available price Executed quickly Low commissions Market order

Types of Orders A buy or sell order that specifies a price limit at which to execute the trade May go unfilled Higher commissions A buy or sell order that specifies a price limit at which to execute the trade May go unfilled Higher commissions Limit order

Types of Orders Instructs a broker to execute a trade when a certain price is reached or passed Unlike limit orders, stop orders are placed above the current market price for buys and below the current market price for sells. Instructs a broker to execute a trade when a certain price is reached or passed Unlike limit orders, stop orders are placed above the current market price for buys and below the current market price for sells. Stop order

Restrictions on Orders Default order Expires at end of the trading day Day order

Restrictions on Orders Your full order is executed or it’s not executed at all. All or none (AON)

Order is active until you cancel it. Usually stays active for about 90 days Also called an open order Good ‘ til canceled (GTC) Restrictions on Orders

Executed immediately or canceled Restrictions on Orders Fill or kill Odd lots Round lots Broker trades in multiples of 100 shares. Broker trades fewer than 100 shares.

Describe the process of securities trading. Objective

Where Securities Are Traded Secondary Market Securities exchanges Over-the-counter market (NASDAQ) Direct trading (ECNs) Securities exchanges Over-the-counter market (NASDAQ) Direct trading (ECNs)

Direct Stock Purchases (DSPs) Plans allow investors to purchase stock directly from the company. No or very low fees Beneficial to investors who want to invest just a little bit each month

Direct Stock Purchases (DSPs) Most of the time, the company automatically reinvests dividends for the investors. Research the company to make sure it’s reputable.

Executing Orders Placing your order In person By telephone Over the Internet From a PDA In person By telephone Over the Internet From a PDA

Broker’s options: Send order to floor manually Floor brokers Executing Orders Send order to floor electronically SuperDOT system Send order to market maker Fill order internally Specialists

In charge of individual stocks Act as brokers and dealers Set opening prices Maintain a fair and orderly market

Selling Short Quick Case Investors sell the shares and keep the money. Investors then borrow shares of that stock from their brokers. Investors determine which particular stock they think is about to drop in price. The price of the stock drops (in theory).

Selling Short Quick Case Investors keep the difference, making a profit. Investors give the shares to their brokers along with interest and commission. Investors buy shares of the stock at the lower price. Very risky Not recommended for beginning investors

MarkED Acknowledgments Original Developers Lelia Ventling and Sarah Bartlett Borich, MarkED Version 1.0 Copyright  2007 MarkED Resource Center

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