ch 16 Flashcards
1
Q
market order
A
- immediate execution at market price
- have priority over all other types of orders
- market order to buy is executed at the lowest price available
- market order to sell is executed at the highest price available
- guarantees execution
2
Q
limit order
A
- limits the amount paid or received for securities
- can only executed at the specified price or better
- if it cannot be executed immediately, it is place on the DMM’s book and executed when and if the market price meets the order limit price
- buy limit orders are placed BELOW the market price
- used by investors who think stock is overpriced
- sell limit order are placed ABOVE the market price
- used by investors who think the stock is undervalued - can be day order or good until canceled
- time priority: filled based on when they were entered
3
Q
stop order
A
- becomes a market order if the stock reaches or goes through the stop (trigger or election) price
- stop loss order
- designed to protect a profit or prevent a loss if the stock begins to move in the wrong direction
- left with and executed by the DMM
- no guarantee the executed price will be the stop price
- buy stop orders are entered ABOVE the current market
- sell stop orders are entered BELOW the current market
- needs 2 trades to execute
- trigger: trigger transaction at or through the stop price activates the trade
2. execution: stop order becomes a market order and is executed at the next price, completing the trade
- trigger: trigger transaction at or through the stop price activates the trade
4
Q
stop limit order
A
- entered as a stop order and changed to a limit order if the stock hits or goes through the stop (trigger or election) price
5
Q
good until canceled (GTC)
A
- valid until executed or canceled
- automatically canceled if unexecuted for the number if days (30-90) set by the individual broker dealer
6
Q
risks of limit orders
A
- risk missing the change to buy or sell
- sometimes not executed, even if the stock trades at the limit price (stock ahead)
7
Q
stock ahead
A
- inability to fill a limit order at a specific prices because other orders at the same price were entered previously
8
Q
buy stop order
A
- protects a profit or limits a loss in a short position
- establishes a long position when a breakout occurs above the line of resistance
- entered at a price ABOVE the current market and is triggered when the market prices touches or goes through the buy stop price
9
Q
sell stop order
A
- protects a profit or limits a loss in a long position
- establishes a long position when a breakout occurs below the line of resistance
- entered at a price BELOW the current market and is triggered when the market prices touches or goes through the sell stop price
10
Q
stop limit orders
A
- a stop order that once triggered becomes a limit order
11
Q
SLoBS over BLiSS
A
- sell limits and buy stops over buy limits and sell stops
- sell limits and buy stops are OVER market prices
- buy limits and sell stops are UNDER market price
12
Q
reducing orders
A
- certain orders on the DMM’s book are reduced when the stock goes ex-dividend
- all orders entered below the market are reduced on the ex-dividend fate
- first date on which a new owner (purchaser) of stock does not qualify for the first dividend.
- on the ex-date the stock price opens LOWER by the amount of the distribution
- buy limits and sell stops are reduced by their dividend amount and are reduced by this amount, otherwise there might be an inadvertent execution
13
Q
do not reduce (DNR)
A
- is not reduced by an ordinary cash dividend
14
Q
reduction for stock splits
A
- DMM will adjust all open orders
15
Q
day orders
A
- an open order (stop or limit) is assumed to be a day order valid only until the close of trading on the dat it is entered
- if the order has not been filled. it is canceled at the close of the day’s trading
16
Q
at the open and market on close orders
A
- at the open order are executed at the opening of the market
- market on close orders are executed at or near the closing price (on NYSE must be entered before 3:40pm ET)
- partial executions are allowed
17
Q
not held (NH) orders
A
- indicates that the customer agrees to not hold the floor broker or the broker dealer to a particular time of price of execution.
- provides floor broker the authority to deiced the best time or price at which to execute the trade
- may not be place with NYSE DMM
- FINRA rule 3260, NH orders are limited to the day the order is given (unless customer in writing says GTC)
18
Q
fill or kill orders (FOK)
A
- fill an entire order immediately at the limit price or better, or cancel it
19
Q
immediate or cancel order (IOC)
A
- like FOK but partial execution is OK
- portion not executed is canceled
20
Q
all or none (AON) orders
A
- must be executed in their entirety or not at all
- day or GTC
- differ from FOK - they do not need to filled immediately
21
Q
one cancels the other (OCO)
A
-two orders are entered, if one is executed the other is immediately canceled
22
Q
quotations
A
- available for listed and unlisted securities
- NYSE quotes are from the DDM
- OTC there is no DDM, but market makers
23
Q
OTC market makers
A
- firms must register with and get approval from FINRA
- buy/sell for their own inventories, for their own profit and at their own risk
- proprietary trading
24
Q
special memorandum account (SMA)
A
- Whenever stock is sold, half of the sales proceeds are credited to SMA. Nonrequired cash deposits are credited to SMA in full. SMA only declines when a customer uses it to borrow from the account or to purchase securities; it is not affected by declines in market value or by interest charges.
- is a line of credit that a customer can borrow from or use to purchase securtities
- for ever $1 increase in market value, $0.50 of SMA is created
- excess equity creates SMA or buying power
- SMA is = to the greater of the EE or the amt already in the SMA
25
Q
long margin account
A
- customers purchase securities and pay interest on the money borrowed until the loan is repaid
26
Q
short margin account
A
- stock is borrowed and then sold short, enabling the customer to profit if the value declines
27
Q
margin agreement
A
- customers who open margin accounts must sign margin agreement before trading can begin
- 3 parts: credit agreement, hypothecation agreement and loan consent form
28
Q
credit agreement
A
- discloses terms of the credit extended by the BD
- includes method of interest computation and situations under which interest rates would change
29
Q
hypothecation agreement
A
- give BD permission to pledge customer margin securities as collateral
- firm hypothecates customer securities to a bank, and the bank loans money to BD
- all customer securities must be held in street name (registered name of the firm)
- BD is the nominal or named owner
- customer is the beneficial owner
- regulation U
- BDs are limited to pledging 140% of a customers debit balance as collateral, anything more than this must be segregated
30
Q
Marking to the market
A
Marking to the market means adjusting cost to current market value. All margin account positions are adjusted daily.
- use to adjust the positions in margin accounts based upon current market prices.
