Financial Markets And Financial Instruments - Part II. How Securities are Traded? Spread. Brokerage Accounts. Commissions. Commissions: Online Brokers

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Financial Markets And Financial Instruments - Part II. How Securities are Traded? Spread. Brokerage Accounts. Commissions. Commissions: Online Brokers"

Transcription

1 Financial Markets And Financial Instruments - Part II How Securities are Traded? Brokerage Accounts You can choose from two types of accounts to open To open an account, you need to choose a broker Commissions Commissions ($50 share price) 200 Shares 500 Shares 1,000 Shares Full-Service Brokers $200 $250 $400 A.G. Edwards Merrill Lynch Discount Brokers $100 $150 $200 Charles Schwab Fidelity Brokerage Deep Discount Brokers $60 $100 $125 Olde Discount Quick & Reilly Source: Fundamentals of Investments, Corrado & Jordan (2000). Commissions: Online Brokers Broker Internet Address Commission for Simple Stock Transaction Charles Schwab $29.95, up to 1,000 shares Fidelity Investments $25, up to 1,000 shares DLJdirect $20, up to 1,000 shares E*Trade $14.95, up to 5,000 shares Waterhouse $12, up to 5,000 shares Ameritrade $8, no share limits Spread BID ASK Spread =.125 The spread, or difference between a stock s BID and ASK price, represents a form of transactions costs when buying or selling a stock. Source: Fundamentals of Investments, Corrado & Jordan (2000). 1

2 Types of Orders Market Order Limit Order Stop-loss Order Market Orders Market orders are simply buy and sell orders that are to be executed immediately at current market prices. Limit Orders Specify the prices at which they are willing to buy or sell a stock. If the stock price falls below the limit on a limit buy order then the trade is to be executed. Correspondingly, a limit-sell order will be executed if the stock price goes above the specified limit. Limit Orders Assume the Bid-Ask prices for Microsoft stock are $25.20 $ Stop Loss Orders Stop loss orders are similar to limit orders in that they will not be executed unless the stock hits a price limit. If the stock price falls below the limit on a stop loss sell order then the trade is to be executed. Correspondingly, a stop loss buy order will be executed if the stock price goes above the specified limit. Stop loss Orders Assume the Bid-Ask prices for Microsoft stock are $25.20 $

3 Auction Market Model (NYSE) Floor-based Single Specialist Order-driven Capital commitment limited to one firm Trade halts for volume imbalances Limit orders Dealer Market Model (Nasdaq) Screen-based Competing Market Makers Quote-driven Capital commitment from multiple firms Continuous order flow Arbitrage Opportunity A pure arbitrage opportunity is a when you can make an immediate profit without taking any risk and without committing any capital. This is achieved usually by simultaneously buying and selling the same or similar security at advantageous prices. MM1 MM2 MM3 MM4 BID MM OFFER MM There is no free lunch in financial markets One of the basic principles in finance is that there is no arbitrage opportunity or there is no free lunch. Limits to Arbitrage In practice, there are limits to arbitrage 3

4 Margin Purchase Brokers extend credit toward purchase or carry of securities via margins Margin is the portion of investment value that is not borrowed Margin Account Equity Margin = Market Value of Position Assume an initial margin requirement of 55% and maintenance margin of 40%. With $5,500 of equity capital, you can buy 100 shares at $100 per share with a margin loan from the broker or else only 55 shares. What is your margin if price rises to $120? Or falls to $80? At what price will your broker issue a margin call? What is your margin if price rises to $120? Amount you borrowed was Market Value of position is now Your margin is now Or as a percent: Or what if price falls to $80? Amount you borrowed was Market Value of position is now Your margin is now Or as a percent: At what price will your broker issue a margin call? Account Equity Margin = Market Value of Position 100 P $4, = 100 P Solving for P, we get 4

5 Another Example You are Bullish on ICM. The current price is $50 per share and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker at a call loan rate of 8% per annum. What will your rate of return be if ICM s price rises 10% over the next year? (Ignore dividends) How far would the year-end price need to fall to get a margin call if the maintenance margin is 30%? Another Example What will your rate of return be if ICM s price rises 10% over the next year? You now owe your broker The new market price is $55, so your position is now worth Your equity is Your rate of return is then Another Example How far would the year-end price need to fall to get a margin call if the maintenance margin is 30%? Short Sales Short sales allow investors to profit from a decline in a security s price by selling securities they do not own. How? SEC Rules: Solving for P, we get P =. Short Sales: Example You are bearish on ICM. The current market price is $50 per share and you want to sell short 100 shares. How much cash and securities must you put into your brokerage account if the broker s initial margin requirement is 50%? How high can the price go before you get a margin call if the maintenance margin is 30%? Short Sales: Example How much cash and securities must you put into your brokerage account if the broker s initial margin requirement is 50%? You are shorting A 50% initial margin would require another 5

6 Short Sales: Example How high can the price go before you get a margin call if the maintenance margin is 30%? Account Equity Margin = Market Value of Position 7, P.30 = 100 P Solving for P, we get P = Intel is $40 per share. You buy 500 shares using $15,000 your own money and borrow the rest. The rate on margin loan is 8%. A. What is your return if price immediately goes to $44, $40, $36? If $44, return = If $40, return = If $36, return = B. If the maintenance margin is 25%, at what price do you receive a margin call? P= C. At what price do you receive a margin call if you put down only $10,000 of your own money? P= D. What is your return if price is $44, $40, $36 in a year? E. At what price you receive a margin call in a year? Sell short 500 shares of Intel with current price of $40. You give your broker $15,000. A. If $44, If $40, If $36, B. At what price you receive a margin call? P= 6

7 C. What if Intel pays a dividend of $1? Bid: $55 ¼ Ask: $55 ½ A. Market buy order executed at B. Market sell order executed at C. The limit sell at $ be executed. D. The limit buy at $ be executed against the limit sell order. Before 2000, this limit order will not be executed. 7

Financial Markets And Financial Instruments - Part I

Financial Markets And Financial Instruments - Part I Financial Markets And Financial Instruments - Part I Financial Assets Real assets are things such as land, buildings, machinery, and knowledge that are used to produce goods and services. Financial assets

More information

Investment Analysis (FIN 383) Fall 2009. Homework 2

Investment Analysis (FIN 383) Fall 2009. Homework 2 Investment Analysis (FIN 383) Fall 2009 Homework 2 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Thu,

More information

How Securities Are Traded. Chapter 3

How Securities Are Traded. Chapter 3 How Securities Are Traded Chapter 3 Primary vs. Secondary Security Sales Primary new issue issuer receives the proceeds from the sale first-time issue: IPO = issuer sells stock for the first time seasoned

More information

How Securities Are Traded

How Securities Are Traded How Securities Are Traded Chapter 3 Primary vs. Secondary Security Sales Primary new issue issuer receives the proceeds from the sale first-time issue: IPO = issuer sells stock for the first time seasoned

More information

Investment Analysis (FIN 670) Fall 2009. Homework 2

Investment Analysis (FIN 670) Fall 2009. Homework 2 Investment Analysis (FIN 670) Fall 2009 Homework 2 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue,

More information

Trading Costs. Characteristics of well-functioning markets

Trading Costs. Characteristics of well-functioning markets Trading Costs 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:

More information

Homework Margin Purchases. Dr. Patrick Toche

Homework Margin Purchases. Dr. Patrick Toche Homework Margin Purchases Dr. Patrick Toche A dagger indicates a possibly more challenging question. Maintenance Margin 1. You are bullish on Telecom stock. The current market price is $50 per share, and

More information

Margin Requirements & Margin Calls

Margin Requirements & Margin Calls Margin Requirements & Margin Calls Dr. Patrick Toche References : Zvi Bodie, Alex Kane, Alan J. Marcus. Essentials of Investment. McGraw- Hill Irwin. Chapter 3 of the Bodie-Kane-Marcus textbook will be

More information

Goals Information and Trading

Goals Information and Trading Information and Trading Economics 71a Gitman/Madura Chapter 16 Lecture notes 9 Information sources Information Sources Web Private Free and subscription Government Federal Reserve Information Sources Key

More information

Margin Requirements & Margin Calls

Margin Requirements & Margin Calls Margin Requirements & Margin Calls Dr. Patrick Toche References : Zvi Bodie, Alex Kane, Alan J. Marcus. Essentials of Investment. McGraw- Hill Irwin. Chapter 3 of the Bodie-Kane-Marcus textbook will be

More information

Outline. Securities Markets. Markets. Money and Capital Markets. Markets Orders Positions Information

Outline. Securities Markets. Markets. Money and Capital Markets. Markets Orders Positions Information Outline Securities Markets Economics 71a Spring 2007 Mayo, Chapter 3 Lecture notes 2.3 Markets Orders Positions Information Primary markets Markets New issues (IPO s, corporate and public debt) Secondary

More information

Chapter 3. How Securities are Traded

Chapter 3. How Securities are Traded Chapter 3 How Securities are Traded Primary vs. Secondary Security Sales Primary: When firms need to raise capital, they may choose to sell (or float) new securities. These new issues typically are marketed

More information

Homework Margin Purchases. Dr. Patrick Toche

Homework Margin Purchases. Dr. Patrick Toche Homework Margin Purchases Dr. Patrick Toche A dagger indicates a possibly more challenging question. Maintenance Margin 1. You are bullish on Telecom stock. The current market price is $50 per share, and

More information

CHAPTER 3: ANSWERS OF HOW SECURITIES ARE TRADED

CHAPTER 3: ANSWERS OF HOW SECURITIES ARE TRADED CHAPTER 3: ANSWERS OF HOW SECURITIES ARE TRADED PROBLEM SETS 1. Answers to this problem will vary. 2. The dealer sets the bid and asked price. Spreads should be higher on inactively traded stocks and lower

More information

A stock is a share in the ownership of a company. Stock represents a claim on the company s assets and earnings.

A stock is a share in the ownership of a company. Stock represents a claim on the company s assets and earnings. Stock Market Basics What are stocks? A stock is a share in the ownership of a company. Stock represents a claim on the company s assets and earnings. As an owner (shareholder), you are entitled to your

More information

CHAPTER 2. Buying and Selling Securities

CHAPTER 2. Buying and Selling Securities CHAPTER 2 Buying and Selling Securities Don t gamble! Take all your savings and buy some good stock and hold it till it goes up. If it don t go up, don t buy it. You might wish to try Will Rogers well-known

More information

When firms need to raise capital, they may issue securities to the public by investment bankers.

When firms need to raise capital, they may issue securities to the public by investment bankers. CHAPTER 3. HOW SECURITIES ARE TRADED When firms need to raise capital, they may issue securities to the public by investment bankers. Primary market is a market for new securities. Secondary market is

More information

Financial Markets and Institutions Abridged 10 th Edition

Financial Markets and Institutions Abridged 10 th Edition Financial Markets and Institutions Abridged 10 th Edition by Jeff Madura 1 12 Market Microstructure and Strategies Chapter Objectives describe the common types of stock transactions explain how stock transactions

More information

of Investments First you buy a stock. Fundamentals Chapter Review, I. Getting Started Investment 320 Ahmed Y. Dashti

of Investments First you buy a stock. Fundamentals Chapter Review, I. Getting Started Investment 320 Ahmed Y. Dashti 2 C h a p t e r Investment 320 Ahmed Y. Dashti Buying and Selling Securities First you buy a stock. Don t Gamble! Take all your savings and buy some good stock and hold it till it goes up. If it don t

More information

Chapter Objectives. Chapter 9. Financial Markets and Institutions. What are the two major classes of investment alternatives? Why invest?

Chapter Objectives. Chapter 9. Financial Markets and Institutions. What are the two major classes of investment alternatives? Why invest? Chapter Objectives Chapter 9. Financial Markets and Institutions To identify the basic investment alternatives To understand the nature of securities market, distinguishing between organized exchanges

More information

Bodie, Kane, Marcus, Perrakis and Ryan, Chapter 3

Bodie, Kane, Marcus, Perrakis and Ryan, Chapter 3 Bodie, Kane, Marcus, Perrakis and Ryan, Chapter 3 Answers to Selected Problems 1 FBN Inc has just sold 100,000 shares in an initial public offering The underwriter s explicit fees were $70,000 The offering

More information

Understanding Margin and Its Risks

Understanding Margin and Its Risks Understanding Margin and Its Risks www.siebertnet.com Before opening a margin account, you should have a clear understanding of the basic facts about margin and the risks of trading securities on margin.

More information

Operation of Stock Exchange

Operation of Stock Exchange Topics to be Discussed Stock Market Transactions Types of Brokers Role of Specialist Types of Trading Orders Trading and Settlement Dates Stock Market Transactions When you buy, you buy from another person

More information

CHAPTER 16. Stocks and Bonds

CHAPTER 16. Stocks and Bonds CHAPTER 16 Stocks and Bonds SECTION 1: Stocks Financial Markets Stocks and bonds are bought and sold in a financial market. Financial markets channel money from some people to other people. They bring

More information

rrading Costs Buying on Margin 76 PART I Introduction

rrading Costs Buying on Margin 76 PART I Introduction 76 PART I Introduction E rrading Costs Part of the cost of trading a security is obvious and explicit. Your broker must be paid a commission. Individuals may choose from two kinds of brokers: full-service

More information

Short Sale. Dr. Patrick Toche

Short Sale. Dr. Patrick Toche Short Sale Dr. Patrick Toche References : Zvi Bodie, Alex Kane, Alan J. Marcus. Essentials of Investment. McGraw- Hill Irwin. Chapter 3 of the Bodie-Kane-Marcus textbook will be followed closely. Other

More information

Part I: Investment Environment (continued)

Part I: Investment Environment (continued) Securities & Investments Analysis First few Weeks: Investment Environment Markets and Instruments Weeks 3 & 4: Issuing Securities Part I: Investment Environment (continued) Trading Securities (market microstructure

More information

The Ultimate Guide to Buying and Selling Penny Stocks

The Ultimate Guide to Buying and Selling Penny Stocks The Ultimate Guide to Buying and Selling Penny Stocks 1 Table of Contents Part One... Introduction to Penny Stocks 3 Penny Stock Basics? 3 Why Trade Penny Stocks? 4 Where Are Penny Stocks Traded? 4 Part

More information

PFIN 12: Buying and Selling Investments 78

PFIN 12: Buying and Selling Investments 78 PFIN 12: Buying and Selling Investments 78 12-1 Researching Investments OBJECTIVES Describe the types of financial information found in magazines, newspapers, and newsletters. Describe the type of data

More information

Discount Stock Brokers

Discount Stock Brokers Article Text Copyright (c) Technical Analysis Inc. 1 Stocks & Commodities V. 3:3 (114-116): Discount Stock Brokers by Richard Maturi Discount Stock Brokers by Richard Maturi If you're a sophisticated investor,

More information

THE STOCK MARKET GAME GLOSSARY

THE STOCK MARKET GAME GLOSSARY THE STOCK MARKET GAME GLOSSARY Accounting: A method of recording a company s financial activity and arranging the information in reports that make the information understandable. Accounts payable: The

More information

Margin Trading. A. How Margin Works? B. Why Trading on Margin Can Be Very Risky and Is Not Suitable for Everyone? C. Conclusion

Margin Trading. A. How Margin Works? B. Why Trading on Margin Can Be Very Risky and Is Not Suitable for Everyone? C. Conclusion A. How Margin Works? B. Why Trading on Margin Can Be Very Risky and Is Not Suitable for Everyone? C. Conclusion 2 An investor who purchases securities may pay for the securities in full, from his own resources,

More information

Determination of Forward and Futures Prices

Determination of Forward and Futures Prices Determination of Forward and Futures Prices Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012 Short selling A popular trading (arbitrage) strategy is the shortselling or

More information

Lecture Two Essentials of Trading. Andy Bower www.alchemetrics.org

Lecture Two Essentials of Trading. Andy Bower www.alchemetrics.org Lecture Two Essentials of Trading Andy Bower www.alchemetrics.org Essentials of Trading Why People Trade Money What People Trade Market Where People Trade Exchanges How People Trade Brokers Orders Margin

More information

Mastering the Markets

Mastering the Markets www.mastermindtraders.com Presents Mastering the Markets Your Path to Financial Freedom DISCLAIMER Neither MasterMind Traders or any of its personnel are registered broker-dealers or investment advisors.

More information

BEAR: A person who believes that the price of a particular security or the market as a whole will go lower.

BEAR: A person who believes that the price of a particular security or the market as a whole will go lower. Trading Terms ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers

More information

Brief Overview of Futures and Options in Risk Management

Brief Overview of Futures and Options in Risk Management Brief Overview of Futures and Options in Risk Management Basic Definitions: Derivative Security: A security whose value depends on the worth of other basic underlying variables. E.G. Futures, Options,

More information

C H A P T E R Investing in Stocks 421

C H A P T E R Investing in Stocks 421 Investing in Stocks C H A P T E R 15 Walter Woodward owned 500 shares of a stock that he bought at $40 per share. As the price rose steadily over the course of several months to over $48, Walter decided

More information

2 Buying and Selling Securities

2 Buying and Selling Securities Chapter 2 2 Buying and Selling Securities Getting Started Brokerage Accounts Cash Accounts Margin Accounts Short Sales Investor Objectives, Constraints, and Strategies 2-1 McGraw-Hill/Irwin Copyright 2005

More information

StocksQuest Lesson #3: Selling Short and Buying on Margin

StocksQuest Lesson #3: Selling Short and Buying on Margin StocksQuest Lesson #3: Selling Short and Buying on Margin Selling Short ~ Selling short occurs when investors sell stocks they don t actually own, they do this by borrowing stocks instead of buying stocks.

More information

FIN 432 Investment Analysis and Management Review Notes for Midterm Exam

FIN 432 Investment Analysis and Management Review Notes for Midterm Exam FIN 432 Investment Analysis and Management Review Notes for Midterm Exam Chapter 1 1. Investment vs. investments 2. Real assets vs. financial assets 3. Investment process Investment policy, asset allocation,

More information

Additional Practice Questions for Midterm I

Additional Practice Questions for Midterm I 1 Finance 333 Investments Additional Practice Questions for Midterm I Winter 2004 Professor Yan 1. Financial assets. A) directly contribute to the country's productive capacity *B) indirectly contribute

More information

Understanding the Stock Market

Understanding the Stock Market Understanding the Stock Market Today s Agenda Today we ll discuss What stocks are and how they work Market cycles Information sources for stock investing What Are Stocks and How Do They Work? Stocks represent

More information

Investments I HW 2 - Solutions

Investments I HW 2 - Solutions Investments I HW 2 - Solutions Sailesh Tiwari 26 September, 2008 Problem 1 (BKM Ch3. Ques.3) (a) The Trader buys 300 Internet Dreams shares at $40 per share. Total cost of the shares is 300 $40 = $12000.

More information

WHAT HOLDS ONLINE MARKETS BACK? AN EXAMINATION OF U.S. STOCKBROKERS RULE 11AC1-6 REPORTS. Bruce W. Weber #CIS-2002-07. May 2002

WHAT HOLDS ONLINE MARKETS BACK? AN EXAMINATION OF U.S. STOCKBROKERS RULE 11AC1-6 REPORTS. Bruce W. Weber #CIS-2002-07. May 2002 WHAT HOLDS ONLINE MARKETS BACK? AN EXAMINATION OF U.S. STOCKBROKERS RULE 11AC1-6 REPORTS Bruce W. Weber #CIS-2002-07 May 2002 Bruce W. Weber Professor of Computer Information Systems Zicklin School of

More information

Investment 320 Dr. Ahmed Y. Dashti

Investment 320 Dr. Ahmed Y. Dashti Investment 320 Dr. Ahmed Y. Dashti د. احمد يوسف دشتي Interactive quiz from text's web 1. An investor with a short position will profit if the security increases in value. 2. The Security Investors Protection

More information

How Securities Are Traded

How Securities Are Traded How Securities Are Traded What is this project about? You will learn how securities are traded on exchanges, particularly how to conduct margin trades, short sales, and submit limit orders. What case do

More information

Learn about exchange-traded funds. Investor education

Learn about exchange-traded funds. Investor education Learn about exchange-traded funds Investor education Become a more knowledgeable exchange-traded funds investor In this education guide, you ll get answers to common questions about exchange-traded funds,

More information

SAMPLE MID-TERM QUESTIONS

SAMPLE MID-TERM QUESTIONS SAMPLE MID-TERM QUESTIONS William L. Silber HOW TO PREPARE FOR THE MID- TERM: 1. Study in a group 2. Review the concept questions in the Before and After book 3. When you review the questions listed below,

More information

What is stock? What drives stock prices? To introduce what Stock Index CFD is, we d like to introduce to you what stock. trading is first.

What is stock? What drives stock prices? To introduce what Stock Index CFD is, we d like to introduce to you what stock. trading is first. To introduce what Stock Index CFD is, we d like to introduce to you what stock trading is first. What is stock? our private enterprise system. They spur job creation and economic growth while creating

More information

Trading Securities CHAPTER 4 INTRODUCTION TYPES OF ORDERS

Trading Securities CHAPTER 4 INTRODUCTION TYPES OF ORDERS CHAPTER 4 Trading Securities INTRODUCTION Investors who do not purchase their stocks and bonds directly from the issuer must purchase them from another investor. Investor-toinvestor transactions are known

More information

The Basics of Accounting ACCT 201

The Basics of Accounting ACCT 201 The Basics of Accounting ACCT 201 Content Accounting definition Accounting equation Accounting elements Asset, Liabilities, & Equity Transactions Accounts Receivable vs Accounts Payable Retained Earnings

More information

Unit 3: Saving & Investing. Investing All About Stocks

Unit 3: Saving & Investing. Investing All About Stocks Unit 3: Saving & Investing Investing All About Stocks What is Stock? Stock is ownership in a company Think about this Wal-Mart began as a single-store business in Arkansas Dell began when it s founder,

More information

BARUCH COLLEGE DEPARTMENT OF ECONOMICS & FINANCE Professor Chris Droussiotis LECTURE 2. Chapter 3 SECURITIES MARKETS

BARUCH COLLEGE DEPARTMENT OF ECONOMICS & FINANCE Professor Chris Droussiotis LECTURE 2. Chapter 3 SECURITIES MARKETS LECTURE 2 Chapter 3 SECURITIES MARKETS IPO Required Docs: Amendment to the certificate of incorporation Corporate Governance (Private are far less formal responsibility) Recruit Independent Board Members

More information

Chapter. 2 Buying and. Selling Securities. McGraw-Hill/Irwin. Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter. 2 Buying and. Selling Securities. McGraw-Hill/Irwin. Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2 Buying and Selling Securities McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Buying and Selling Securities Don t Gamble! Take all your savings and buy

More information

2016 2010 South-Western, Cengage Learning

2016 2010 South-Western, Cengage Learning Chapter 2 Investing in Stocks 2.1 Evaluating Stocks 2.2 Buying and Selling Stocks Lesson 2.1 Evaluating Stocks Learning Objectives LO 1-1 Describe features of stock and types of stocks. LO 1-2 Explain

More information

This Report Is For You! Options Basics

This Report Is For You! Options Basics This Report Is For You! You have in your hands a powerful report on options and the option market. We ve written this report for two types of investors those new to options trading, and for any experienced

More information

What s a fee-only financial advisor? Steve Juetten, CFP November 7, 2011

What s a fee-only financial advisor? Steve Juetten, CFP November 7, 2011 What s a fee-only financial advisor? Steve Juetten, CFP November 7, 2011 Introduction Someone giving personal financial advice may use a variety of titles: financial adviser, financial consultant, financial

More information

INVESTMENT DICTIONARY

INVESTMENT DICTIONARY INVESTMENT DICTIONARY Annual Report An annual report is a document that offers information about the company s activities and operations and contains financial details, cash flow statement, profit and

More information

Investment Finance 421-002 Prototype Midterm I

Investment Finance 421-002 Prototype Midterm I Investment Finance 421-002 Prototype Midterm I The correct answer is highlighted by a *. Also, a concise reasoning is provided in Italics. 1. are an indirect way U. S. investor can invest in foreign companies.

More information

SHORT INTRODUCTION OF SHORT SELLING

SHORT INTRODUCTION OF SHORT SELLING Financial Assets and Investing SHORT INTRODUCTION OF SHORT SELLING Dagmar Linnertová Faculty of Economics and Administration, Masaryk University, Lipová 41a, 602 00 Brno, e-mail: Dagmar.Linnertova@mail.muni.cz

More information

FINANCIAL ENGINEERING CLUB TRADING 101

FINANCIAL ENGINEERING CLUB TRADING 101 FINANCIAL ENGINEERING CLUB TRADING 101 WHAT IS TRADING TRADING/INVESTING is the act of putting capital to use, by either buying or selling securities, for the purpose of gaining profits. Buy low, sell

More information

How CFD Trading Works?

How CFD Trading Works? What are CFD s In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference

More information

Understanding your account situation

Understanding your account situation Understanding your account situation This guide helps you to understand your account situation on Penson s intranet web site The first section describes what we think are the most useful pages of Penson

More information

Types of Stock. Common Stock most common form of stock. Preferred Stock. Companies may customize other classes of stock.

Types of Stock. Common Stock most common form of stock. Preferred Stock. Companies may customize other classes of stock. Stock Market Basics What are Stocks? Stock is ownership in a publicly traded company. Stock is a claim on the company s assets and earnings. The more stock you have, the greater your claim as an owner.

More information

1. Overconfidence {health care discussion at JD s} 2. Biased Judgments. 3. Herding. 4. Loss Aversion

1. Overconfidence {health care discussion at JD s} 2. Biased Judgments. 3. Herding. 4. Loss Aversion In conditions of laissez-faire the avoidance of wide fluctuations in employment may, therefore, prove impossible without a far-reaching change in the psychology of investment markets such as there is no

More information

Chapter 14: Savings and Investing Savings and Investing

Chapter 14: Savings and Investing Savings and Investing Savings and Investing Consumers can use any money left over from purchasing goods and services toward savings or investing. Saving means putting money aside for future use. Investing is using savings to

More information

Excess Equity and Buying Power. Non-Restricted Accounts. Minimum Maintenance Requirement. NYSE/NASD Minimum Credit Requirement

Excess Equity and Buying Power. Non-Restricted Accounts. Minimum Maintenance Requirement. NYSE/NASD Minimum Credit Requirement Margins Excess Equity and Buying Power Restricted Accounts Same-Day Substitution Non-Restricted Accounts Minimum Maintenance Requirement NYSE/NASD Minimum Credit Requirement The Short Sale Credit Balance

More information

Client Education. Learn About Exchange-Traded Funds

Client Education. Learn About Exchange-Traded Funds Client Education Learn About Exchange-Traded Funds 2 What is an ETF? 6 How do ETFs work? 12 How do ETFs compare with other investments? 2 Exchange-traded funds, or ETFs, are attracting more and more attention

More information

The right bond at the right price: Understanding bond pricing. Smart bond buying could save you thousands.

The right bond at the right price: Understanding bond pricing. Smart bond buying could save you thousands. The right bond at the right price: Understanding bond pricing. Smart bond buying could save you thousands. Executive summary Compared with stock market investing, it s not always easy to know what is

More information

A Closer Look at the Stock Markets

A Closer Look at the Stock Markets We b E x t e n s i o n 1 C A Closer Look at the Stock Markets This Web Extension provides additional discussion of stock markets and trading, beginning with stock indexes. Stock Indexes Stock indexes try

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. (a) In the money market, short-term securities such as CDs, T-bills, and banker s acceptances are traded. Long-term securities such as stocks and bonds are traded in the

More information

Chapter 8 - Owning and Trading Equities

Chapter 8 - Owning and Trading Equities 8-1: ANSWERS TO QUESTIONS & PROBLEMS Chapter 8 - Owning and Trading Equities The market order should be executed at the open. When the price rose from $88 to $90 it triggered the limit order, which we

More information

The Young Investor s Guide To Understanding The Terms Used In Investing.

The Young Investor s Guide To Understanding The Terms Used In Investing. The Young Investor s Guide To Understanding The Terms Used In Investing. The Young Investor Dictionary compliments of Integrity Mutual Funds. YOUNG INVESTOR DICTIONARY Asset Something of value. The property

More information

Suggested Answers to Discussion Questions

Suggested Answers to Discussion Questions Suggested Answers to Discussion Questions 1. One reason for the large initial returns is the significant amount of hype surrounding new issues. This was especially true in the late 1990s, during what is

More information

Stock Market -Trading and market participants

Stock Market -Trading and market participants Stock Market -Trading and market participants Ruichang LU ( 卢 瑞 昌 ) Department of Finance Guanghua School of Management Peking University Overview Trading Stock Understand trading order Trading cost Margin

More information

BUYING STOCKS ON MARGIN

BUYING STOCKS ON MARGIN BUYING STOCKS ON MARGIN The Basics BEFORE YOU INVEST, INVESTIGATE TM Securities Industry Association SIA thanks the Discount Brokerage and Investor Education Committees and the public relations executives

More information

Practice Set #1 and Solutions.

Practice Set #1 and Solutions. FIN-672 Securities Analysis & Portfolio Management Professor Michel A. Robe Practice Set #1 and Solutions. What to do with this practice set? To help MBA students prepare for the assignment and the exams,

More information

Review for Exam 1. Instructions: Please read carefully

Review for Exam 1. Instructions: Please read carefully Review for Exam 1 Instructions: Please read carefully The exam will have 21 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation

More information

CHAPTER 14. Investing in Securities. Beginning to Invest in Stocks. When Should You Sell a Stock? Personal Finance

CHAPTER 14. Investing in Securities. Beginning to Invest in Stocks. When Should You Sell a Stock? Personal Finance CHAPTER 14 Investing in Stocks Personal Finance 7e Kapoor Dlabay Hughes 14-1 Why Corporations Issue Common Stock To raise money to start or expand a business. To help pay for ongoing business expenses.

More information

Lecture 15: Final Topics on CAPM

Lecture 15: Final Topics on CAPM Lecture 15: Final Topics on CAPM Final topics on estimating and using beta: the market risk premium putting it all together Final topics on CAPM: Examples of firm and market risk Shorting Stocks and other

More information

Dear DIF Broker Customer,

Dear DIF Broker Customer, Dear DIF Broker Customer, DIF BROKER SA ("DIF") is required by its regulators to provide you with certain disclosures on a periodic basis. Accordingly, we are delivering the following disclosures to you:

More information

In effect CFD s are financial derivatives, originally known as Traded Options, that allow traders to take advantage of prices moving up (long

In effect CFD s are financial derivatives, originally known as Traded Options, that allow traders to take advantage of prices moving up (long What are CFD s In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference

More information

Chapter 1.1. The Stock and CFD Market

Chapter 1.1. The Stock and CFD Market 1 Chapter 1.1 The Stock and CFD Market 0 THE STOCK AND CFD MARKETS The global financial markets have never been so vibrant and alive, and they have never been so accessible to you as an individual investor.

More information

Loan Disclosure Statement

Loan Disclosure Statement ab Loan Disclosure Statement Risk Factors You Should Consider Before Using Margin or Other Loans Secured by Your Securities Accounts This brochure is only a summary of certain risk factors you should consider

More information

The Repo Market. Outline Repurchase Agreements (Repos) The Repo Market Uses of Repos in Practice

The Repo Market. Outline Repurchase Agreements (Repos) The Repo Market Uses of Repos in Practice The Repo Market Outline and Readings Outline Repurchase Agreements (Repos) The Repo Market Uses of Repos in Practice Buzzwords Repo, Reverse repo, Repo rates, Collateral, Margin, Haircut, Matched book,

More information

sample materials This material is from the Council for Economic Education

sample materials This material is from the Council for Economic Education sample materials This material is from the Council for Economic Education To find out more about this publication, visit http://store.councilforeconed.org Permissions and usage You have permission to use

More information

15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points, the max points is 3 points

15.433 Investments. Assignment 1: Securities, Markets & Capital Market Theory. Each question is worth 0.2 points, the max points is 3 points Assignment 1: Securities, Markets & Capital Market Theory Each question is worth 0.2 points, the max points is 3 points 1. The interest rate charged by banks with excess reserves at a Federal Reserve Bank

More information

Virtual Stock Market Game Glossary

Virtual Stock Market Game Glossary Virtual Stock Market Game Glossary American Stock Exchange-AMEX An open auction market similar to the NYSE where buyers and sellers compete in a centralized marketplace. The AMEX typically lists small

More information

ACTIVITY 20.1 THE LANGUAGE OF FINANCIAL MARKETS: DEFINITIONS

ACTIVITY 20.1 THE LANGUAGE OF FINANCIAL MARKETS: DEFINITIONS ACTIVITY 20.1 THE LANGUAGE OF FINANCIAL MARKETS: DEFINITIONS AMEX: The acronym stands for American Stock Exchange, formerly an independent market but now part of the New York Stock Exchange; the AMEX s

More information

Types of Brokerage Accounts

Types of Brokerage Accounts Types of Brokerage Accounts Making a determination as to where and with whom to commit your investment dollars takes some thought. There are three types of brokerage houses that will transact the purchase

More information

Chapter 14. Investing in Stocks. McGraw-Hill/Irwin. Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 14. Investing in Stocks. McGraw-Hill/Irwin. Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 14 Investing in Stocks McGraw-Hill/Irwin Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Investing in Securities Securities include a broad range of investments. Stocks.

More information

On-Line Discount Brokers

On-Line Discount Brokers COMPARISON On-Line Discount Brokers by Kenneth J. Michal Our first comparison of the new millennium yields 75 on-line discount brokers decreasing the total by one from last year s 76 brokers. As the industry

More information

Mastering the Markets

Mastering the Markets www.mastermindtraders.com Presents Mastering the Markets Your Path to Financial Freedom DISCLAIMER Neither or any of its personnel are registered broker-dealers or investment advisors. We may mention that

More information

THE STOCK EXCHANGE. Agócs Adrienne

THE STOCK EXCHANGE. Agócs Adrienne THE STOCK EXCHANGE Agócs Adrienne OUTLINE The stock exchange shares, bonds and securities The main roles of the stock exchange Bulls and bears Types of securities Different information about the performance

More information

HOW TO SELL A STOCK BY KELLY GREEN

HOW TO SELL A STOCK BY KELLY GREEN HOW TO SELL A STOCK BY KELLY GREEN HOW TO SELL A STOCK In our first report, How to Buy a Stock, we took you step-by-step through selecting a broker and making your first trade. But we also pointed out

More information

Guide to Options Strategies

Guide to Options Strategies RECOGNIA S Guide to Options Strategies A breakdown of key options strategies to help you better understand the characteristics and implications of each Recognia s Guide to Options Strategies 1 3 Buying

More information

NEW MARGIN REQUIREMENTS FOR DAY TRADING

NEW MARGIN REQUIREMENTS FOR DAY TRADING CLIENT MEMORANDUM NEW MARGIN REQUIREMENTS FOR DAY TRADING The regulation of securities credit as it applies to day trading will change substantially in August and September of this year as a result of

More information