Order Book

Question 1

Open Interest

Answer 1

Exchange traded contract this is the total number of contracts outstanding
SHORT = LONG

Question 2

Order Book

Answer 2

list of orders that exchange uses to record the interest of b&S in a financial instrument
INTEREST BUY –> BID
INTEREST SELL –> OFFER

Question 3

Concept of Position

Answer 3

exposure to market at given moment of time
long P - Buy - benefit from market going up
short P - sell - benefit when market goes down

Question 4

Bid Price

Answer 4

Maximum price buyer is willing to pay

Question 5

Offer Price

Answer 5

minimum price seller is willing to receive

Question 6

Bid - Ask Spread

Answer 6

two-way price quotation indication the price at which security can be sold/bought at spec. point in time
difference in prices (spread) is key indicator of liquidity of asset (the smaller the better L)

Question 7

Quotation

Answer 7

10.50/10.55
bid/offer -> buy/sell
order to sell –> 10.50
order to buy –> 10.55

Question 8

Parameters

Answer 8

Order = message sent to market
Side = long vs short
Level = price, yield
Instrument = share x, future y , Option z
Types of Order = market, limit, stop etc.
Valid for =

Question 9

Types of Prices

Answer 9

last price = agreed
bid price = best price s.o is willing to buy it
offer price = best available price s.o is wiling to sell
Open Price = start of day

Question 10

Market Order

Answer 10

request for a trade to be carried out immediately at the best price available in market
last traded price isn´t automatically the pice at which market order will be executed
doesn´t guarantee price but fill

Question 11

M. Order Pros

Answer 11

you are always guaranteed to get the trade filled

best option if you are absolutely need to get in or out of trade

Question 12

M. Order Cons

Answer 12

they don´t guarantee price or allow for any precision order entry
this can lead to costly slippage/ delay (this can be limited by using M.O only on instruments that are traded with good liquidity)

Question 13

Order Book Picture

Answer 13

BID –> highest price

ASK –> lowest price first

Question 14

Limit Order

Answer 14

Specifies a particular price
the order is executed only at this price or more favourable
–> lower (buy) or higher (sell)
need to be precise about price & side of market (otherwise you can get filled at M.P)

Question 15

L.Order Pros

Answer 15

guarantee price
allows precise order entry
appropriate if getting specific price is more important than just filled

Question 16

L.Orders Cons

Answer 16

dosn´t guarantee fill (only if fill price reaches the specific limit price)
miss out trading opportunity if P. moves away from limit P before your order can be filled
Market moves to L.P but oder still not get filled if not enough B&S at that part. level

Question 17

Stop-Loss Order

Answer 17

executed a best available price once a bid/offer is made at that part. price or less favourable
Stop Loss becomes a Market Order as soon as specified price has been hit
purpose is to close out position if unfavourable price movement (limits loss incurred)

Question 18

Stop-Loss Example

Stop Order at 30 but Market Price is 35

Answer 18

order will become an order to sell when and if the price falls down 30

Question 19

Stop- Limit Order

Answer 19

combination of Stop Loss and Limit Order
Order becomes Limit Order as soon as bid/offer is made at a price equal/less favourable than stop price
TWO PRICES MUST BE SPECIFIED (stop & limit price)

Question 20

Stop Limit Order Example

MP at 35 and SLO to SELL

Answer 20

Stop Price = 40 and Limit Price = 41
–> as soon as Market Price increases to 40 this offer becomes limit Order to sell for 41 (or above)
IF STOP = LIMIT P –> STOP AND LIMIT ORDER

Question 21

closed position

Answer 21

decrease number of contracts or close all contracts

Question 22

open position

Answer 22

go long/short on contract

when not having anything or increasing your contracts bought/sold