How Securities are Traded

Question 1

Brokerage Account

Answer 1

An account with a brokerage house used to buy or sell securities

Question 2

Cash Account

Answer 2

An account where the customer pays the brokerage house the full price for any securities purchased. See also “Margin Account”

~~Cash- You pay full price

Question 3

Market Order

Answer 3

Immediately buy or sell the security at the best available price. Will execute (as long as there is a counterparty) but at an unknown price.

~~Market- You buy and sell immediately at best price

Question 4

Limit Buy Order

Answer 4

Initiate a trade if the market price is below the specified price. May not execute, but you have some control over the price.

Limit~~ Below specified price

Question 5

Buy Stop Order

Answer 5

Buy the security once the price has risen above a specified level. Used to protect an investor who has a short position and thinks the price might increase further.

Buy Stop~~ Buy security when price has risen.
* Used to protect investor who has short position and thinks price might increase further

Question 6

Sell Stop Order (Stop Loss)

Answer 6

Sell the security once the price has fallen below a specified level. Used to protect an investor who thinks the price might fall further.

Opposite of BuyStop

Question 7

All or None Order

Answer 7

Order to buy or sell a stock that must be executed in its entirety, or not executed at all. AON orders that cannot be executed immediately remain active until they are executed or cancelled.

All or None~~ Excuted immediaely until executed or cancelled.

Question 8

Fill or Kill Order

Answer 8

Fill the entire order immediately or cancel it.

Question 9

Immediate or Cancel

Answer 9

Fill the whole order or any part immediately, canceling the balance.

Because you are immediately paying for the order, it cancels the balance.

Question 10

Securities and Exchange Commission (SEC)

Answer 10

A federal government agency responsible for administering securities laws.

Question 11

Financial Industry Regulatory Authority (FINRA)

Answer 11

An agency set up the financial industry to regulate financial firms and markets

Question 12

Algorithmic trading

Answer 12

These of computers to automatically decide on the price, quantity and timing of an order.

Computer

Question 13

High-Frequency Trading

Answer 13

Automated trading where shares are hold for only a very short periods of time, sometimes for less than a minute

Question 14

Margin Account

Answer 14

An account that allows the investor to borrow from the brokerage to purchase securities. This is sometimes called “buying on margin”.

Borrowing brokerage to buy securities.

Question 15

Margin

Answer 15

The investor’s equity in a margin transaction. The amount NOT borrowed.

Question 16

Initial Margin

Answer 16

The initial equity an investor has in a margin transaction.

Question 17

Maintenance Margin

Answer 17

The minimum margin (expressed as a percentage) that the investor must have at all times during a margin transaction.

Main=Min
Margin
- Must have at all times

Question 18

Margin Call

Answer 18

A demand from the broker for additional cash or securities as a result of the actual margin declining below the maintenance margin. The broker can also choose to sell securities from the investor’s account.

Question 19

Short Sale

Answer 19

The sale of a stock borrowed by an investor in order to take advantage of an expected decline in the price of the stock.

Question 20

Short Interest Ratio

Answer 20

The ratio of total shares sold short to average daily trading volume.