CHAPTER SIX MARKET MECHANICS Practical Investment Management Robert A Strong
MARKET MECHANICS CHAPTER SIX Practical Investment Management Robert A. Strong
Placing Orders: Order Information Flow 3. Confirms trade Stock Exchange 2. Submits 3, Confirms order Brokerage Firm trade Accounting Operations 4. Confirms trade 5, Mails confirmation statement Broker 1. Places order Individual Investor Strong c6- market Mechanics 6-2
6 - 2 Strong C6 – Market Mechanics Placing Orders: Order Information Flow Individual Investor Broker 1. Places order 4. Confirms trade Stock Exchange Brokerage Firm Accounting Operations 2. Submits 3. Confirms order trade 3. Confirms trade 5. Mails confirmation statement
Placing Orders: Types of Orders e Market orders are to be executed as soon as possible after reaching the exchange floor. Limit orders must specify a price and a time imit,eg.“Buy500at$90, good till canceled.” . A stop order differs from a limit order in that the order is only executed if the specified price, called the stop price, is touched Stop orders become market orders when the stop price is reached Strong c6- market Mechanics 6-3
6 - 3 Strong C6 – Market Mechanics Placing Orders: Types of Orders ◆ Market orders are to be executed as soon as possible after reaching the exchange floor. ◆ Limit orders must specify a price and a time limit, e.g. “Buy 500 at $90, good till canceled.” ◆ A stop order differs from a limit order in that the order is only executed if the specified price, called the stop price, is touched. Stop orders become market orders when the stop price is reached
Placing Orders: Types of Orders The most important use of a stop order is to protect a profit. Moving a stop up behind a rising stock is called using a crawling stop order. ◆ Other orders: once cancels the other all or none fi∥orki stop limit Strong c6- market Mechanics 6-4
6 - 4 Strong C6 – Market Mechanics Placing Orders: Types of Orders ◆ The most important use of a stop order is to protect a profit. Moving a stop up behind a rising stock is called using a crawling stop order. ◆ Other orders: - once cancels the other - all or none - fill or kill - stop limit
Placing Orders: Types of Orders Stock rises to 48 raise stop to 46 55 Stock rises to 40 raise stop to 38 45 Stock hits target Stop place stop at 33 Stop 35 Stop Stop is hit stock is sold 25 Buy stock 25 Target price 35 Time Strong c6- market Mechanics 6-5
6 - 5 Strong C6 – Market Mechanics Placing Orders: Types of Orders Insert Figure 6-3 here