L3_new - Ch3. How securities are traded Stock Trading in...

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•1 Investment Analysis: Prof. Peng 3 Ch3. How securities are traded Stock Trading in the Secondary Market ¾ Where are stocks traded? ¾ How are stocks traded? ¾ How to use margin accounts to buy and sell stocks? Investment Analysis: Prof. Peng 4 Types of Markets ± Direct Search Markets ¾ Buyers and sellers locate one another on their own ± Brokered Markets ¾ 3 rd party assistance in location buyer or seller ± Dealer Markets ¾ 3 rd party acts as intermediate buyer/seller ± Auction Markets ¾ Brokers & dealers trade in one location, trading is more or less continuous 3-4
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•2 Investment Analysis: Prof. Peng 5 How are stocks traded? ± Types of orders ¾ Market order: ± buy/sell immediately at current market price ± Quick execution with uncertain price ¾ Limit order: ± buy with a specified limit price (max), sell with a specified limit price (min) ± Slow execution with less uncertain price ± On the exchange the limit order is placed in a limit order book kept by an exchange official or computer ¾ Limit order book ± All the current offers to buy/sell: prices & # shares ¾ Price priority ± Best offers (highest bid and lowest ask) get executed first Investment Analysis: Prof. Peng 6 Limit Order Book for Intel on Archipelago 3-6
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•3 Investment Analysis: Prof. Peng 7 U.S. Security Markets Overview ± Nasdaq ± Organized Exchanges ¾ New York Stock Exchange ¾ American Stock Exchange ¾ Regionals ± Electronic Communication Networks (ECNs) 3-7 Investment Analysis: Prof. Peng 8 NASDAQ ± NASDAQ: ¾ largest organized stock market for OTC trading; information system for individuals, brokers and dealers ± Securities: stocks, most bonds and some derivatives Buyers Sellers Brokerage Firm Brokerage Firm Dealer Dealer Dealer
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•4 Investment Analysis: Prof. Peng
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L3_new - Ch3. How securities are traded Stock Trading in...

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