Chapter 3 SIE Flashcards
Market order
buy or sell, executed immediately at the best available market price
The fastest way to get an execution since the investor is not price sensitive.
These at market orders should not be used if the security in question is illiquid. In that case limit orders might be the better choice.
limit order
buy or sell, limits the acceptable purchase or selling price paid or received for the securities.
Come with inherent risk. The risk is that the market may never go as low as the buy limit designated on the order, or as high as the sell limit designated on the order. As a consequence it is possible that the order will never be executed.
stand in time priority. There may be multiple orders to buy stock at a particular price. Once the stock begins trading at that price, those limit orders that were entered first will be filled first.
for a buy limit order, or better means at the limit price or
lower
for a sell limit order, or better means at the limit price or
higher
buy limit order buy 1000 shares of xyz at 32
this order could only be executed to purchase xyz at 32 or better. because this is an instruction to buy, or better would be lower. therefore it would need to be executed at 32 or lower
sell limit order sell 1000 shares of xyz at 32
this order could only be executed to sell xyz at 32 or better. Because this is an instruction to sell, or better would be higher. therefore it would need to be executed at 32 or higher.
stop order
buy or sell a stop order does not become a “live” working order in the marketplace until the stock trades at or through a specified stop price, the order becomes a market order, and like any other market order, it should be executed immediately at the best available price.
xyz cmv = 12
Order: buy 2000 shares xyz at 15 stop
as soon as xyz trades at or through the stop price of 15, this order will become a live working market order, and like all market orders, will be executed at the next available price.
Stop limit order
Buy or sell, this order type also has a stop price and does not become a “live” working order until the stock trades at or through the stop price. However it also has a limit price, so once the order is triggered by the stock reach the specified stop price, the order becomes a limit order to buy or sell at a specified limit. Like any other limit order, it may or may not be executed depending on where the price of the stock is.
day order
Unless marked to the contrary, an order is assumed to be a day order, valid only until the close of trading on the day it is entered. If the order has not been filled(executed in full), it is canceled at the close of the day’s trading. Keep in mind that while market orders should be filled immediately, this is of more importance with limit orders.
good till canceled order
are valid until executed or canceled. However, all gtc orders are automatically canceled if unexecuted on the last business day of April and the last business day of October. If the customer wishes to have the order remain working beyond those specific days, the customer must reenter the order.
market at open or market on close order
these are market orders designed to be executed at the opening of the day or at the close of the day. Depending on the market (exchange or otc) the order is being sent to, the customer is not guaranteed the exact opening or closing price but instead a price at, or close to, the first or last price of the day.
Fill or kill order
Applicable to limit orders, this is an instruction to fill(execute in its entirety) the order immediately or kill(cancel) the order completely. In this light there can’t ever be a partial execution
all or none order
must be executed in their entirety or not at all. AON orders can be day orders or good till canceled orders. They differ from Fill or Kill in that they do not have to be filled immediately. In other words, they can be held until the end of the day(for day orders) or beyond for gtc orders until they can be filled in their entirety.
bid price and ask(offer) price
the current bid price for a security is the highest price anyone is willing to pay for the securities at that moment in time. The current ask( offer) price is the lowest price that anyone is willing to accept to sell the securities at that moment in time.
all quotes maintained in active markets, like the stock exchange are
dynamic and change constantly throughout the trading day.
spread
difference between the bid and the ask price.
agent
if the firm acts as an agent, it is a broker acting on behalf of its customer to buy or sell securities in the market. The rm is paid a commission when acting as an agent.
agent=broker=commission
principal
If the firm is acting as a principal, the firm is buying into or selling out of, its own inventory to accommodate its customer. In this capacity, the firm is a dealer and will mark up the securities it is selling out of its inventory or mark down the securities it is buying into its inventory, rather than charge the customer a commission.
principal=dealer=markup or markdown
buy in an open position=
long= bullish
sell to open a position=
short= bearish
naked short selling
Selling a stock short without first borrowing the shares or confirming a location where the shares can be borrowed from
this is a violation
By contrast, if the shares have been properly borrowed or they have been located (and therefore, it is known they can be borrowed), the short seller can now move forward and sell short. These shares, because they have already been borrowed or located to be borrowed, are known to be covered.
whats a discretionary account
discretion is defined as the authority to decide
what security
An account set up with preapproved authority for an RR to make transactions without having to ask for speci c approval is a discretionary account.
the number of shares or units
whether to buy or sell
Discretion does not apply to decisions regarding the timing of an investment or the price at which it is acquired only.
A customer can give discretionary power over his account(s) only by filing a
trading authorization or a limited power of attorney with the bd