FINA4320 chapter 4 - Class 4 How Securities are Traded II...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Class 4 How Securities are Traded II
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Fourth Market Investors trading directly with other investors (without brokers) Originally developed for institutional trading Trading now on ECNs (Electronic Communication Networks) ECNs: alternative to both Exchanges (NYSE) and Dealer markets (NASDAQ) Mechanism: crossing (matching); no bid/ask spread Both sides of the trade benefit; + anonymity ECN: ~30% TV in NASDAQ stocks - pressure on NYSE
Background image of page 2
Electronic Computer Networks (ECNs) Major ECNs Island ECN Instinet REDIBook Archipeligo Competing with Nasdaq and NYSE for volume Lead to some fragmentation of markets
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Electronic Computer Networks May lead to some fragmentation of markets Lack of info exchange between ECNs (e.g. price quotes on different ECNs) Intermarket Trading System (ITS): only stock exchanges can participate; ECNs are excluded after-hour trading: larger markets are closed Resolution (could be): electronic center limit-order book
Background image of page 4
ECNs: a technological revolution? McAndrews and Stefanadis [2004]
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Costs of Trading Commission : fee paid to broker for making the transaction Spread : cost of trading with dealer Bid : price dealer will buy from you Ask : price dealer will sell to you Spread : ask - bid Combination : on some trades both are paid
Background image of page 6
OTC Market: Trading Cost
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Types of Orders Instructions to the brokers on how to complete the order Market Limit Stop loss
Background image of page 8
Market Order Market: buy/sell given quantity @ current market price Complications: price may depend on quantity (liquidity discounts) Trading “inside the spread”: (two brokers exchange asset inside the quoted bid-ask spread) Timing: market prices may change during the trade (finite order execution time)
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Limit Order Limit: specify the prices @ which the
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 32

FINA4320 chapter 4 - Class 4 How Securities are Traded II...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online