Trading Session Flashcards
What are the 4 different types of order?
Market order
Best limit order
Stop order
Stop-limit orders
What is a market order?
You specify the ticker and quantity
Immediate execution at the best available price (buy executed at lowest ask, sell executed at highest bid)
What are limit orders?
Specify the ticker, quantity, price
the order is only executed if it can trade at the limit price or better (buy only executed at limit price or lower, sell only executed at limit price or higher)
What are stop orders?
They are an order to stop trading at a certain price essentially designed to prevent you from losing too much money.
How does a sell stop order work?
- You have a long position and want to hedge against dropping prices
- The stop price is below the stock price and serves as the activation point
- once the stop price is reached the order becomes a market order and is executed at the best possible price
risk: price plummets suddenly
How does a buy stop order work?
used when you have a short position and want to hedge against rising prices
Stop price is above stock price. once the stop price is reached the order becomes a market order and is executed at the best price possible
risk: price skyrockets suddenly
What are circuit breakers?
Pre-defined price percentage limits at which trading in a particular security, or the entire market can be halted temporarily. Static thresholds are typically set as a fixed percentage above or below the reference price (usually the previous day’s closing price).
e.g. on Euronext: 10%
What is a block trade?
Block trades are large securities transactions that involve the sale or purchase of a significant number of shares in a single transaction.
What are the characteristics of block trade?
Size
No market impact (to minimize impact on market prices, usually done through dark pools)
Discretion: only between buyer and seller, confidential
Price negotation between buyer and seller
What are dark pools?
Private trading platforms that provide an off-exchange venue for the trading of stocks, they provide a certain anonimity to traders and can help instistutional investors not have to reveal their trading intentions
Why does the trade market need to close?
It allows for coordination and alignment with other global markets, establishing closing and opening prices also helps reduce volatility and the bid/ask spread
What comes before the trading session?
The pre-open time: no trading, but you can start putting in orders
