Chapter 3 (Securities) Flashcards
Algorithmic Trading
The use of computer programs to make rapid trading decisions.
What is the Ask Price
The price at which a dealer or other trader will sell a security.
Auction Market
A market where all traders meet at one place to buy or sell an asset.
Bid-Ask Spread
The difference between the bid and asked prices.
Bid Price
The price at which a dealer or other trader is willing to purchase a security.
Blocks
Large transactions in which at least 10,000 shares of stock are bought or sold.
Dark Pools
Electronic trading networks where participants can anonymously buy or sell large blocks of securities.
Dealer Markets
Markets in which traders specializing in particular assets buy and sell for their own accounts.
Electronic Communication Networks (ECNs)
Computer networks that allow direct trading without the need for market makers.
Define High-Frequency Trading
A subset of algorithmic trading that relies on computer programs to make very rapid trading decisions.
What is the Initial Public Offering (IPO)
First sale of stock by a formerly private company.
Define Inside Information
Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access to information about the firm.
What is Latency
The time it takes to accept, process, and deliver a trading order.
What is a Limited Buy (Sell) Order
An order specifying a price at which an investor is willing to buy or sell a security.
Define Margin
Describes securities purchased with money borrowed in part from a broker. The margin is the net worth of the investor’s account.
What is the NASDAQ Stock Market
The computer-linked price quotation and trade execution system.
What is the Over The Counter (OTC) Market
An informal network of brokers and dealers who negotiate sales of securities.
What is the Primary Market
Market for new issues of securities.
Define Private Placement
Primary offerings in which shares are sold directly to a small group of institutional or wealthy investors.
Define Prospectus
A description of the firm and the security it is issuing.
What is the Secondary Market
Market for already-existing securities.
Define a Short Sale
The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan.
What is a Specialist
A trader who makes a market in the shares of one or more firms and who maintains a “fair and orderly market” by dealing personally in the market.
What are Stock Exchanges
Secondary markets where already-issued securities are bought and sold by members.
Define Stop Order
Trade is not to be executed unless stock hits a price limit.
What are Underwriters?
Underwriters purchase securities from the issuing company and resell them to the public.
What are some characteristics of IPO’s
- At first they are underpriced
- They are sold in the primary market to institutional clients
Why do firms issue stock?
- Private company needs investment capital
- Owner wishes to diversify wealth
- Private investors/venture capitalist want to cash out
- Private owner thinks more valuable public than private
- Existing public firm wants more equity capital
What does a stock investor get?
- Some voting rights for board of directors
- gives rights to dividends
What is the Boards dooties?
- The board provides oversight
- Ensures that the managers look out for interests of shareholders
What are the types of orders for securities?
- Market Order- Execute immediately at best price
- Price-Contingent Order- Buy/Sell at a specified price of better
Explain a Market Order.
- Execute immediately at best price
- Bid Price: price at which dealer will buy security
- Ask Price: price at which dealer will sell security
Explain a Price-Contingent Order.
- Buy/Sell at a specified price of better
- Limit buy/sell order: specifies price at which investor will buy/sell
- Stop order: not to be executed until price point hit
