FNCE 3302 EXAM 1 STUDY GUIDE LATEST
UPDATED AND VERIFIED.
Auction Markets
✔✔• All traders (brokers and dealers) converge in one place
(either physically or electronically) to trade (e.g., the
NYSE)
• Trading is more or less continuous
Market Order
✔✔Buy or sell order to be executed immediately at best price
• Bid price: price at which dealer or other trader will buy a security
• Ask price: price at which dealer or other trader will sell a security
• The main drawback with market orders is that they can
be expensive to execute
Price-contingent order
✔✔Buy/sell at specified price or better
• Limit and stop orders
limit buy order
✔✔Instructs the broker to buy some number of shares if and when they can be
obtained at or below the stipulated price
,limit sell order
✔✔Instructs the broker to sell some number of shares if and when the stock price
rises above the stipulated price
Sell Stop Order
✔✔The stock is to be sold if its price falls below a stipulated level
Buy Stop Order
✔✔Specify that a stock should be bought when its price rise above a stipulated
level
Stop Limit order
✔✔Once the stop price is reached, this order becomes a limit order that will be
executed at a specified price (or better)
NYSE (New York Stock Exchange)
✔✔The largest stock market based on market capitalization and is floor based.
Exchanges in secondary markets where already issued securities are bought and
sold
ECNs
✔✔computer networks that allow direct trading without the need for market
makers
algorithmic trading
✔✔the use of computer programs to make rapid trading decisions
, more than half of all trading in the US is believed to be algorithmic trading
high frequency trading
✔✔a subset of algorithmic trading that relies on computer programs to make very
rapid trading decisions for very small profits
Trade executing time measured in milliseconds or even microseconds
Dark Pools
✔✔ECNs where participants can buy/sell large blocks of securities anonymously
• Blocks: Transactions of at least 10,000 shares
Margin
✔✔• Securities can be purchased with money borrowed from brokers (broker's
call loans)
• In those cases, the margin in the account is the portion of the purchase price
contributed by the investor.
• More generally, margin is the net worth of the investor's account
IMR (Initial Margin Requirement)
✔✔• Minimum set by Fed (Regulation T): 50%
• Minimum percent of initial investor equity
• 1 − IMR = Maximum percent investor can borrow
MMR (maintenance margin requirement)
✔✔• Minimum equity value before additional funds must be added
UPDATED AND VERIFIED.
Auction Markets
✔✔• All traders (brokers and dealers) converge in one place
(either physically or electronically) to trade (e.g., the
NYSE)
• Trading is more or less continuous
Market Order
✔✔Buy or sell order to be executed immediately at best price
• Bid price: price at which dealer or other trader will buy a security
• Ask price: price at which dealer or other trader will sell a security
• The main drawback with market orders is that they can
be expensive to execute
Price-contingent order
✔✔Buy/sell at specified price or better
• Limit and stop orders
limit buy order
✔✔Instructs the broker to buy some number of shares if and when they can be
obtained at or below the stipulated price
,limit sell order
✔✔Instructs the broker to sell some number of shares if and when the stock price
rises above the stipulated price
Sell Stop Order
✔✔The stock is to be sold if its price falls below a stipulated level
Buy Stop Order
✔✔Specify that a stock should be bought when its price rise above a stipulated
level
Stop Limit order
✔✔Once the stop price is reached, this order becomes a limit order that will be
executed at a specified price (or better)
NYSE (New York Stock Exchange)
✔✔The largest stock market based on market capitalization and is floor based.
Exchanges in secondary markets where already issued securities are bought and
sold
ECNs
✔✔computer networks that allow direct trading without the need for market
makers
algorithmic trading
✔✔the use of computer programs to make rapid trading decisions
, more than half of all trading in the US is believed to be algorithmic trading
high frequency trading
✔✔a subset of algorithmic trading that relies on computer programs to make very
rapid trading decisions for very small profits
Trade executing time measured in milliseconds or even microseconds
Dark Pools
✔✔ECNs where participants can buy/sell large blocks of securities anonymously
• Blocks: Transactions of at least 10,000 shares
Margin
✔✔• Securities can be purchased with money borrowed from brokers (broker's
call loans)
• In those cases, the margin in the account is the portion of the purchase price
contributed by the investor.
• More generally, margin is the net worth of the investor's account
IMR (Initial Margin Requirement)
✔✔• Minimum set by Fed (Regulation T): 50%
• Minimum percent of initial investor equity
• 1 − IMR = Maximum percent investor can borrow
MMR (maintenance margin requirement)
✔✔• Minimum equity value before additional funds must be added
