Lesson 9: Secondary Market Flashcards
Broker-Dealers
Broker (Agent): Matches 2 parties who want to execute a trade, paid commission
Dealer (Principal): Here the BD is the counterparty, trading for it’s own account and marking down the security (if buying) or mark up (if selling)
Market Makers
Firms that are ready to buy/sell securities on a continuous basis at a public quote
Need to have quotes during normal market hours
Inside Market
Highest Bid and the Lowest Offer
Notation: Bid x Offer (size x size)
Listed Exchanges
NYSE
- physical floor with designated MM
- auction marketplace
NASDAQ
- Electronic Exchange
- Many MM per stock
- Negotiated marketplace
All MM quotes must be 2-sided (list bid & ask)
OTC Quotation Facilities (Unlisted)
OTC Pink
- no listing requirements
- companies not required to be SEC filers
Generally less liquid, more speculative & volatile
OTC quotes can be either 1 or 2 sided
Buy Order
customer buys securities (bullish market view)
Long Sell Order
customer sells securities they own (bearish market view or taking profit)
Sell Short Order
Customer sells shares they don’t own (bearish view)
Think “opening sale, closing purchase”
Market Orders
Immediately executed at the best available price
Limit Orders
Only execute at a specified price or better
(risk of not executing)
Stop Order
Two step (if-then) process:
1 - if a trade occurs at or thru the stop price
2 - then the order becomes a market order
Meant to protect positions (if i have a stock at $60 and its plummeting, but I enter a sell stop $40 order, if the stock gets to $40 it converts to a market order and trades immediately to prevent further loss)
Trading Ahead
changing your firms position in a stock before releasing research on the stock
Pump & Dump
hyping up the value of a company to inflate it’s stock so shares can be sold at a profit
Spoofing
entering and pulling orders repeatedly with no intent to execute to drum up activity in the stock
