Types of Orders Tutoring Replay = SIE Exam, Series 7 Exam and Series 65 Exam

   • Series 7 Exam Prep - Types of Orders FREE ...   Customer Order Types Explained Dean explained the two main types of customer orders: market orders, which require immediate execution at the best available price, and limit orders, which specify a maximum price for buying or a minimum price for selling. He emphasized that limit orders often include an "or better" clause, meaning the customer is willing to accept a better price if it becomes available. Dean also discussed how to place orders in relation to the current market price, noting that buy limits should be set below the market price and sell limits above it. He concluded by mentioning that while market orders have no contingencies, adding qualifiers to limit orders can reduce the likelihood of them being filled. Stop Orders for Risk Management Dean shared his experience as a broker, explaining the use of stop orders to protect against losses and illustrating their effectiveness with a story about a client who appreciated the strategy. He emphasized the importance of letting profits run while using stop orders to limit losses, and he advised John, his cousin, against making speculative investments with retirement funds, suggesting instead to use personal accounts for such risky moves. Stop Orders and Short Selling Dean explained the mechanics of stop orders, emphasizing that they can be used for protecting profits and establishing stock positions, but not for stop losses. He highlighted that trigger and execution are separate events for contingent orders, and the more qualifiers added, the less likely the order is to be filled. Dean also discussed short selling, noting the importance of risk mitigation and the obligation to return borrowed stock. He provided examples of test questions on buy and sell stops, stressing the convention of placing orders in relation to the current market price. Order Placement and Market Execution Dean discussed trading scenarios and order types, focusing on the placement of buy and sell stops in relation to the current market price. He emphasized the importance of understanding when an order becomes a live market or limit order, and highlighted the need to be cautious with limit orders as they may not be executed if the next trade price is not favorable. Dean also introduced the memory aid "BL SS (SSL)" to help remember the placement of orders in relation to the market price. Stock Order Management Strategies Dean explained the impact of stock dividends on order prices and emphasized the importance of adjusting limit orders below the market to avoid accidental triggers. He also discussed time qualifiers for orders, highlighting the difference between day orders and good till cancel (GTC) orders, and explained the role of designated market makers on the New York Stock Exchange. Dean concluded by mentioning the need for orders to be properly renewed and canceled at specific times to maintain an orderly market. Trade Order Negotiation and Concepts Dean discussed a trade scenario with John, negotiating the terms of an order for 10 contracts with a fill-or-kill option, ultimately agreeing to 90 contracts with similar terms. He explained the concept of market not held orders and the role of floor brokers, emphasizing that such orders do not require discretionary authority as long as the three A's (action, amount, and asset) are specified. Dean also shared anecdotes about his experiences with customer service and limo drivers to illustrate the importance of clear communication in trading. Auction vs. Over-the-Counter Markets Dean explained the differences between auction and over-the-counter markets, highlighting how auction markets, like the New York Stock Exchange, operate with limit orders that set quotes, while over-the-counter markets, like Nasdaq, are quote-driven by market makers trading from inventory. He used eBay as an analogy to illustrate the single-sided nature of secondary transactions and expressed a desire for a bid option to see the spread. Dean also discussed the role of specialists in auction markets, their ability to step ahead for price improvement, and the concept of inside quotes determined by the highest bid and lowest ask. Market Making and Pricing Transparency Dean shared a personal story about buying a painting from an art dealer, highlighting the importance of providing clear pricing and avoiding renegotiation after an agreement. He then explained the concept of market making in the securities industry, discussing the role of market makers in providing liquidity and the significance of firm quotes, minimum sizes, and spreads. Nominal quotes in the context of municipal bonds, emphasizing that these quotes are for informational purposes only and do not guarantee actual transactions. Dean shared a story about an apprentice who misunderstood the nature of nominal quotes, leading to potential issues with redemption requests and portfolio valuation.