LAP: QS-047

How Securities Are Traded

ObjectivesObjectives

Describe types of securities trades.

Describe the process of securities trading.

Describe types of securities trades.Describe types of securities trades.

ObjectiveObjective

Basic Securities TradesBasic Securities Trades

Order—instructs your broker to buy or sell for you

Order—instructs your broker to buy or sell for you

Buy order—order to purchase a security Buy order—order to purchase a security

Sell order—order to sell a security you own Sell order—order to sell a security you own

Types of Orders

• A buy or sell order to be executed immediately at the best available price

• Executed quickly

• Low commissions

• A buy or sell order to be executed immediately at the best available price

• Executed quickly

• Low commissions

Market order

Types of Orders

• A buy or sell order that specifies a price limit at which to execute the trade

• May go unfilled

• Higher commissions

• A buy or sell order that specifies a price limit at which to execute the trade

• May go unfilled

• Higher commissions

Limit order

Types of Orders

• Instructs a broker to execute a trade when a certain price is reached or passed

• Unlike limit orders, stop orders are placed above the current market price for buys and below the current market price for sells.

• Instructs a broker to execute a trade when a certain price is reached or passed

• Unlike limit orders, stop orders are placed above the current market price for buys and below the current market price for sells.

Stop order

Restrictions on Orders

• Default order

• Expires at end of the trading day

Day order

Restrictions on Orders

• Your full order is executed or it’s not executed at all.

All or none (AON)

• Order is active until you cancel it.

• Usually stays active for about 90 days

• Also called an open order

Good ‘til canceled (GTC)

Restrictions on Orders

• Executed immediately or canceled

Restrictions on Orders

Fill or kill

Odd lots

Round lots

• Broker trades in multiples of 100 shares.

• Broker trades fewer than 100 shares.

Describe the process of securities trading.

Describe the process of securities trading.

ObjectiveObjective

Where Securities Are Traded

Secondary MarketSecondary Market

Securities exchanges

Over-the-counter market (NASDAQ)

Direct trading (ECNs)

Securities exchanges

Over-the-counter market (NASDAQ)

Direct trading (ECNs)

Direct Stock Purchases (DSPs)

Plans allow investors to purchase stock directly from the company.

No or very low fees

Beneficial to investors who want to invest just a little bit each month

Direct Stock Purchases (DSPs)

Most of the time, the company automatically reinvests dividends

for the investors.

Research the company to make sure it’s reputable.

Executing Orders

Placing your orderPlacing your order

• In person

• By telephone

• Over the Internet

• From a PDA

• In person

• By telephone

• Over the Internet

• From a PDA

Broker’s options:

Send order to floor manually

• Floor brokers

Executing Orders

Send order to floor electronically• SuperDOT system

Send order to market maker

Fill order internally

• Specialists

In charge of individual stocks

Act as brokers and dealers

Set opening prices

Maintain a fair and orderly market

Selling ShortSelling Short

Quick Case

• Investors sell the shares and keep the money.• Investors sell the shares and keep the money.

• Investors then borrow shares of that stock from their brokers.

• Investors then borrow shares of that stock from their brokers.

• Investors determine which particular stock they think is about to drop in price.

• Investors determine which particular stock they think is about to drop in price.

• The price of the stock drops (in theory).• The price of the stock drops (in theory).

Selling ShortSelling Short

Quick Case

• Investors keep the difference, making a profit.• Investors keep the difference, making a profit.

• Investors give the shares to their brokers along with interest and commission.

• Investors give the shares to their brokers along with interest and commission.

• Investors buy shares of the stock at the lower price.

• Investors buy shares of the stock at the lower price.

• Very risky• Very risky

• Not recommended for beginning investors

• Not recommended for beginning investors

MarkED

Acknowledgments

Original DevelopersLelia Ventling and Sarah Bartlett Borich, MarkED

Version 1.0

Copyright 2007MarkED Resource Center

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