How Securities Are Traded
Chapter 5 allows students to concentrate solely on the
mechanics of securities trading after learning about financial
markets in Chapter 4.
This material typically is of great
interest to most students, and instructors must decide how much
time and effort to devote to it.
Chapter 5 devotes considerable attention to the major aspects
of brokerage transactions.
An important part of this discussion
centers around brokers themselves, a subject which tends to
interest many students quite a lot.
The chapter discussion
explains what brokers do, the types of brokerage operations (full-
service vs. discount vs. deep discount), how brokers are
compensated, and how much they make annually.
The remainder of the brokerage transaction discussion covers
the major points that students need to know.
These include the
types of brokerage accounts, commissions, investing without a
broker, how orders work, the types of orders, clearing procedures,
and so forth.
Instructors will wish to vary their discussions of
this material depending upon student knowledge, interest, time
availability, and current discussions in the popular press.
There are numerous interesting illustrations that can be
given of brokerage costs, how orders work on the exchanges and in
the OTC, market orders versus limit orders, and so forth.
popular press regularly has articles that would be appropriate for
class discussion, including
Chapter 5 contains a thorough discussion of investor
protection in the markets, a topic of concern to many investors.
This covers not only federal legislation and the SEC but also
self-regulation by the stock exchanges, including the latest
measures on the NYSE such as trading halts and sidecars.
of the NASD in regulating brokers and dealers also is covered.
extended example of regulation involving penny stocks is given.
The remainder of the chapter is devoted to margin trading and
These are important subjects, and ones that many
students have difficulty understanding, particularly short
It is suggested that instructors spend a reasonable
amount of time explaining these concepts.