Chapter 5-How Securities Are Traded-Part 1

Chapter 5-How Securities Are Traded-Part 1 - 5-1Chapter...

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Unformatted text preview: 5-1Chapter 5Charles P. Jones, Investments: Analysis and Management,Tenth Edition, John Wiley & SonsPrepared byG.D. Koppenhaver, Iowa State UniversityHow SecuritiesAre Traded(Part 1)5-2Brokerage Operations¡Brokerage firms earn commissions on executed trades, sales loads on mutual funds, profits from securities sold from inventory, underwriting fees and administrative account fees¾Full-service brokers offer order execution, information on markets and firms, and investment advice¾Discount brokers offer order execution5-3Account Types¡Cash account: Investor pays 100% of purchase price for securities¡Margin account: Investor borrows part of the purchase price from the broker¡Asset management account: automatic reinvestment of excess cash balances in money market fund5-4Account Types¡Cash management account¾Checks can be written against account’s assets¾Instant loans at a markup to call money rate based on the account’s assets¡Wrap account: Brokers match investors with outside money managers¾All costs, fees wrapped into one 5-5Fees and Costs¡Brokerage commissions differ by security, broker, and investor¾Institutional investors have greatest negotiating power¡Dividend reinvestment plans permit reinvestment of dividends in additional stock¾Avoids commissions, administrative fees5-6Orders in Auction Markets¡Most NYSE volume from matched public buy and sell orders¡Spets act as both brokers and dealers in the stocks assigned to them¾Maintain the limit order book¾Keep a fair and orderly market by providing liquidity5-7NYSE Automation¡SuperDot: An electronic order...
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter 5-How Securities Are Traded-Part 1 - 5-1Chapter...

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