Ch3_2__1

Ch3_2__1 - Trading stocks Chapter 3(2) Orders Market orders...

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Trading stocks Chapter 3(2)
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Orders Market orders Consume liquidity Limit orders Provide liquidity Others
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Market Order To be executed immediately at the best at- market (current) price. Specify the quantity in a market order. Time is the first priority with price being the second priority; market orders executed quickly
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Limit Order To be executed only if a specified price, or better price, exists. specify the quantity and set a limit on the price at which it can be executed (the limit price). the risk: their limit orders may not be executed price is the first priority with time as the second.
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Limit buy orders For limit BUY order, the limit price is set below the current market price, Determines the HIGHEST price this limit buy order can be executed. Example - Stock A selling $25: a limit buy @ $23 [instruct the broker to buy when price falls below $23]
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Limit sell orders For limit SELL order, the limit price is set above the current market price, Determines the LOWEST price this limit sell order can be executed. Example - a limit sell @$27 [to sell when price goes above $27]
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Stop Order To activate a market order when a specified price is reached. Investors specify quantity and set a price on stop orders. The purpose of a stop order is to stop the loss that can occur in the event of an adverse price movement.
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For STOP-BUY order, the stop price, set above the current market price, determines when the stop buy order should be activated. It usually accompanies short sales in order to limit potential losses from the short position. Example - a stop buy @$30 [to buy when price
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This note was uploaded on 07/12/2011 for the course FINA 221 taught by Professor Na during the Spring '09 term at HKUST.

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Ch3_2__1 - Trading stocks Chapter 3(2) Orders Market orders...

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