Trading Basics Flashcards
First Market
Trading on exchange floors
What are the 5 regional exchanges?
Chicago Pacific Philadelphia Boston Cincinnati
CQS
Consolidated Quotations Service; provides current price quotes for NYSE and NYSE-MKT securities
Network A Tape
CQS feed that reports NYSE issues
Network B Tape
CQS feed that reports NYSE-MKT issues; also reports regional exchange trades
Network C Tape
NASDAQ issues
Second Market
Over the counter
OTCBB
Over the Counter Bulletin Board; displays quotes for companies not on exchanges
Pink OTC Markets
speculative stocks & delisted companies; also some foreign companies
Third Market
OTC trading of exchange listed securities
Benefits of third market
Compete with exchanges; offer competitive prices and are open 24hrs
Payment for order flow
Portion of payment for a trade returned to buyer
Fourth Market
direct trading of securities between institutions
ECN
electronic communications networks; match buy and sell orders 24/7
Regulation ATS
Required ECNs to register with SEC as brokers; if market share is > 5% for a security must also publicly display orders
Regulation NMS
National Market Securities; set of rules that govern securities trading
Rule 602
Exchanges must collect and display bids and offers
Rule 604
Limit Order Display Rule; exchanges must display all orders so the best price is seen
Rule 605
Market Center Order Execution Report; requires monthly report that summarizes order execution
Rule 606
Requires firms to report to customers the details of order routing and payment for order flow
Rule 607
Requires firms to notify customers of order flow policies
Rule 611
Requires that exchanges execute a trade at the best price across all markets that issue is tradign
Trade Through
when a trade is completed at an inferior price; unlikely to happen now due to electronic trading and rule 611
Rule 610
Requires exchanges to offer automatic execution of trades and the same speed of trading to all users
Rule 612
no sub-penny quotes on NMS stocks trading at $1 or more
Sub-penny quotes
ECN allow quoting stocks in sub-penny increments; creates hidden market
What is a dealers spread?
Difference between bid (what they will buy at) and ask (what they will sell at) prices
Specialist/DMM
5 specialist firms handle act as dealers for all NYSE issues; also called DMMs: Designated Market Makers
NYSE vs NASDAQ dealers
NYSE: 5 specialist firms act as dealers for all issues, cannot deal with public
NASDAQ: multiple competing market makers, can work directly with public
How do dealers work on the second market?
Second market prices are negotiated due to no centralized electronic quote resource
How do brokers make money?
Via commission
How do dealers make money?
Via mark-up
Regulation SHO
Covers short sales; requires that a broker must have shares on hand to cover the short sale
GTC
Good til cancelled; most orders cancelled at the end of the day if not fulfilled; customer can indicate GTC in which case the order stays in the system
AON
All or none: either entire order is filled or nothing; trader is free to attempt again later
FOK
Fill or kill; order filled on the first try or not at all
IOC
Immediate or Cancel: part of all of the order is filled on the first try or is cancelled
Not held
Tells the trader to determine when to make the trade if they think a better price will happen later in the day
Limit order
specifies a price that is to be hit when selling or buying an order
Market Order
filled immediately at market price
Open Buy Stop
Says to buy a stock at a certain price, but does not trigger until that price is reached. Allows a buy order to be placed above the market rate to hedge a short stock position
Open Sell Stop
Says to sell a stock at a certain price, but does not trigger until that price is reached. Allows a sell order to be placed below the market rate to hedge a long stock position
Open Buy Limit
Says to buy a stock if the market falls to a certain limit
Open Sell Limit
Says to sell a stock if the market rises to a certain limit
What is resistance level?
The price a stock seems to hit that triggers investors to sell their shares
Is a breakout of the resistance level bullish or bearish?
Bullish because it indicates that there are more buyers than sellers
What is the support level of a stock?
The price a stock hits that triggers investors buying it
Is a breakout of the resistance level bullish or bearish?
bearish because it indicates there are more sellers than buyers
UQDF
UTP Quote Data Feed; displays NASDAQ quotes
