Default Flashcards
How is stock market similar to auction market?
Auction is a situation, where either buyers or sellers compete for the price and outbid each other. In the stock market, buyers and sellers compete simultaneously and continously for the price. Whenever they meet in the middle, the prices are set.
What is the difference between primary and secondary market?
Primary market, This is where the issuance of new securities happen. In this market
companies raise funds by issuing new stocks through an initial public offering (IPO).
Everything after that is secondary market (also called the aftermarket, is the financial market in which
previously issued financial instruments such as stock, bonds, options, and futures are
bought and sold. … After the initial issuance, investors can purchase from other investors
in the secondary market.)
What’s an IPO?
This is the first time that a stock of a private company
is offered to the public. It is very hard for regular investors to get shares at the IPO
What is an underwriter?
The underwriter (a company that helps other companies introduce new securities to the market) will take care of selling those stocks to funds and banks.
What is a market order?
This is a buy/sell order that needs to be executed immediatly at any
price available. This type of order will allways get filled when the stock market is open
and the stock in question is trading. Market orders are used when your priority is getting
the fill over getting a particular price. This is the simplest order type.
What is a limit order?
A limit order is an order to buy or sell a stock at a specific price or better.
A buy limit order can only be executed at the limit price or lower. A sell limit order
can only be executed at the limit price or higher. A limit order is not guaranteed to be
executed.
What are components of an order?
1) Ticker: Combination of letters that represent a particular company that is listed on
an exchange.
2) Order type: Market order(natychmiastowa)/limit order(zlecenie oczekujące)
3) Quantity
4) Side, buy/ Sell
5) Price
What is the difference between shares outstanding and float?
Shares outstanding refers to the total number of shares a company has issued, while the public float — also referred to as floating shares or “the float” — are shares that are publicly owned, unrestricted and available on the open market.
What is the difference between level 1 and level 2?
Level2 / Order book: Electronic list of buy and sell orders for a stock. This list is
ordered by price and then by time. The order book lists the number of shares on the
bid and ask at every price point.
Level1: Displays the bid and ask prices as well as quantities. This also displays the last
trade executed.
41$ 55$
3000 5000
BID ASK
What is BID, ASK and SPREAD?
41$ 55$
3000 5000
BID ASK
Bid is the best price you can buy at.
Ask is the best price you can sell at.
Spread is the difference between bid and ask
Whats the difference between how mutual traders trade and how retail traders trade?
Mutual funds (big institutions), that have a lot of capital participate very differently to normal players. As a big institutions, they will try to sell their shares, when there is good news, because that's the only time, they are gonna be able to unload their shares.
IF he sells, when the stock is going down, he will make the stock tumble. He needs to wait for good news, so there will be buyers that unload his shares.
It’s important to know if stock has a lot of institutional ownership.
That’s why, when a stock has a lot of retail investors, then it’s likely to explode in one direction or another.
What are the different players?
- proprietary trading firms. - also called “smart money”, are trading firms with lot of tools that help them predict the prices. They usually go in fast and go out fast and want to make money on less smart people
- Investors. - want to make an investment, hold to a stock for a longer period of time
- Retail Traders - traders, that trade in their household, want to make easy money, a stock that has high percentage of retail traders is a good place for people with good strategies and skills
- Portfolio managers (mutual funds) - are funds that collect big amounts of capital and invest big sums in the exchange. Usually, because of the fees, we are much better off, putting money in an etf - historically they return much better than such a fund
- Hedge Funds - they make more returns that mutual funds.
What is going Long, Short and Flat?
- Going Long: buying a stock and selling it back at a higher price.
- Going Short: Borrowing a stock that you do not own. Selling it. And if the price
drops, buying it back at he lower price, giving back the stock to it’s original owner and
keeping the difference of price (which is your profit). - Being Flat: Having no position in a particular stock.
What are the threats when going short?
When going short (SELL),
- we can make at most as much as the value of the stock. We can lose inifinity.
- we can make the money fast - usually, when stock is falling its falling fast - that’s why we should keep our shorts short
On the other hand, when we go Long (BUY), its the opposite.
- money builds up gradually
- Going long is much more popular than going short.
- Markets, have tendency to grow with time.
What is EV and why is it important?
Expected Value (EV) The expected value of a discrete random variable is the probability-weighted average of all possible values.
Expected value: The expected value is an anticipated value for a given investment.
In statistics and probability analysis, the expected value is calculated by multiplying
each of the possible outcomes by the likelihood that each outcome will occur, and
summing all of those values. By calculating expected values, investors can choose the
scenario that is most likely to give them their desired outcome.
