4: Transactions (2nd Market)

Question 1

Name the costs of trading.

Answer 1

1. Explicit cost of commissions

2. Implicit costs of the bid-ask spread and price impact

Question 2

What are the two most important types of orders?

Answer 2

1. market orders

2. limit orders

Question 3

When should a market order be used?

Answer 3

when an investor wants an immediate trade and is willing to take whatevery the price is at the time of the trade

Question 4

When should a limit order be used?

Answer 4

when an investor wants to assure the price, provided he/she is willing to wait for a trade to take place at that price or skip the trade if that price cannot be obtained