1.1.2 Buying and Selling Assets

Question 1

stock exchange

Answer 1

an auction where stocks are bought and sold

i.e. New York Stock Exchange / NASDAQ

Question 2

commodities exchange

Answer 2

an auction where commodities are bought and sold

i.e. Chicago Mercantile Exchange

Question 3

market-maker

Answer 3

has arrangement with an exchange to facilitating continuous trading

Question 4

Commision

Answer 4

market-makers charge to investor for purchasing or selling asset

Question 5

Types of Commision

Answer 5

1) Flat i.e. $10 a transaction

2) Percentage i.e. 0.2% of dollar amount of transaction

Question 6

Commission Affect of Buying asset

Answer 6

commission makes buying an asset more expensive, since commission fees are added to the purchase price

Question 7

Commission Affect of selling asset

Answer 7

you will receive less than the selling price, since commission fees are subtracted from your sale

Question 8

Bid price

Answer 8

Price that market makers buy from investors

Question 9

Ask Price

Answer 9

Price that market-makers sell to investors, always higher than the Bid Price

Question 10

Bid-Ask Spread

Answer 10

Ask Price - Bid Price

Question 11

How market-maker makes profit

Answer 11

Buying low and Selling High

Question 12

Round-Trip Transaction Cost

Answer 12

The cost associated with opening and closing a financial position is known
i.e. the difference between what you pay and what you receive from a sale using the same set of bid and ask prices

Question 13

market order

Answer 13

you are instructing the market-maker to fulfill order immediately at the best available price

Question 14

limit order

Answer 14

you are specifying a certain price at which to buy or sell. A buy limit order is fulfilled at the limit price or lower; a sell limit order is fulfilled at the limit price or higher.

Question 15

Stop-Loss order

Answer 15

executed whenever the price of the asset falls to (or below) a certain price