Unit 2B: Players on the Stock Exchange Notes
- 1. Unit 2B: Players on the Stock Exchange Mr. Elsesser Wall Street I
- 2. Key Players in the Stock Exchange • Stockbroker (basic definition): ▫ An agent licensed by the SEC to buy and sell securities for clients and receives a commission based on the total dollar volume of each order.
- 3. Key Players in the Stock Exchange • Specialists: ▫ Make money by buying and selling at right price and by charging commissions to floor brokers if they leave their orders to go to another trading post.
- 4. Key Players in the Stock Exchange • Floor Broker: ▫ The person who actually executes a stock order on the exchange floor. • Two Dollar Broker: ▫ An independent member of the stock exchange who is not connected with the firm. Used to get $2 for every order. Occurs in cases when a brokerage’s floor broker is too busy with other orders.
- 6. Key Players in the Stock Exchange • Specialist Firms at NYSE: ▫ Seven specialist firms ▫ 450 specialists covering 2,700 stocks • Market Makers: ▫ A market maker is a person who trades a particular OTC stock and who is similar to a NYSE specialist.
- 7. Key Players in the Stock Exchange •Full-Service Brokerage Firm: ▫A firm that offers a complete range of services from research data to investment advice. •Registered Representative: ▫A broker who passes the “Series 7 Exam” A comprehensive securities test
- 9. Types of Stock Orders: 1. Market Order: An order to a broker to buy or sell a stock at the best possible price. “I want to buy 200 shares of Disney at the current price.” or “Sell my shares of Disney at the highest price.” 2. Limit Order: An order to a broker to buy or sell shares at a specific price not greater than a specific amount “I want to buy 200 shares of Disney if the price drops to $40 per share.” or “Sell my shares of Disney if the price reaches $45 per share.”
- 10. Types of Stock Orders: 3. Stop Loss Order: An order to a broker to sell stock when the price has declined to a specific level. Ex. Investor paid $30, current price is $40. Investor tells broker to sell if stock drops to $38 to be sure to get an $8 gain.
- 11. Types of Stock Orders: 4. Short Sell: You borrow shares, sell them on the market, and then collect the proceeds as cash. Borrow 10 shares, and sell them for $100 Later, you buy back same number of shares from somewhere else to repay the person (or brokerage) from whom you borrowed them. Buy 10 shares at market price, $80 If you buy back the shares at a price lower than the price at which you originally sold them, you collect the difference. Short selling is a way to profit from a falling stock!!!
- 12. How Long Should a Stock Order Stand? • Stop Loss Order: ▫ An order that is filled that day or is automatically cancelled. • Good Till Cancelled (GTC): ▫ An order that will stand until it is filled or until the investor cancels it.
- 13. Trade Lingo: • Round Lots: ▫ A stock order that is a multiple of 100 shares Example: 100, 200, 300, etc. • Odd Lots: ▫ A stock order that is not a multiple of 100 shares. Commissions are higher for odd lots. Example: 50 or 322 shares
- 14. Trade Lingo: • Ticker Tape: ▫ An electronic display of stock transactions that flashes across a screen in most brokerages. • Computerized Quote Machine: ▫ A system that gives up to the minute stock quotes and also allows a stockbroker to access information on corporations, industries, currencies, stocks and bonds.
- 16. Trade Lingo: • Trading Post: ▫ An area on the exchange floor where particular stocks are traded. • Designated Order Turnaround (DOT): ▫ A computerized system that allows a stockbroker to wire an order directly to a specialist’s computer at the trading post where the stock is traded. Smaller orders, Less than 1,200 shares