Capital Markets - Secondary Stock

Markets
 Secondary Stock Markets
 The Stock Exchanges are alternatively either Order Driven,
Price Driven or Pure Auction Market.

 Dealer Driven Markets are the mechanisms where a number of

Market Makers (Dealer) provide a Bid Price quote at which they
will buy a security and an Ask Price quote at which they will sell
security. They are also referred to as Quote Driven Market.
 Dealers Markets bring together and compile the Bid-Ask
quotes of the competing dealers to make available the buyers
and sellers the best (highest) bid prices and the best (lowest)
ask prices.
 Secondary Stock Markets
 The Stock Markets are also classified as:
 Primary Markets
Secondary Markets
Third Market: OTC Market and
Fourth Markets: Electronic Communication Networks
(ECN’s)
 Membership
 The Exchange Memberships in US exchanges fall into four
categories:
Specialists: Control the limit orders books, posts bid and asks
prices, trades for his own account.
 Commission Broker: they execute Customer Trade for a
brokerage firm.
 Floor Brokers: they are free-lance brokers for commission
brokers.
Registered Traders: they trade for their account.
 Types of Trades
 There are four types of trade that take place in stock market:
Market Orders: these orders are to buy or sell at the best
available price.
Limit Orders: These orders are to buy or sell but specifies the
maximum or minimum price.
 A limit sell order has typically a limit above the current
price and limit buy order has bellow the current price.
These order have time limits as well i.e. instantaneous,
one day, one week, one month or Good till Cancelled
(GTC).
 Types of Trades
 Short Sell Orders: these orders are for borrowed stocks, A
trader borrows stock, sell it, then purchases the stocks later on to
return back to the original owner.
 For short sale order, the short seller
1) simultaneously borrows and sells securities through
dealers.
2) must return the securities to dealer at his request or
when short sell is closed out.
3) Must keep a portion of the proceeds of short sale on
deposit with the broker.

 Stop Loss Order: these orders are used to prevent losses or

protect profits.
 Margin Transactions: Trading on borrowed money while
keeping securities as collateral.