Stocks

You have probably heard a popular definition of what a stock is: “A stock is a share in the
ownership of a company. Stock represents a claim on the company's assets and earnings. As you
acquire more stock, your ownership stake in the company becomes greater.” Unfortunately, this
definition is incorrect in some key ways.
To start with, stock holders do not own corporations; they own shares issued by corporations.
But corporations are a special type of organization because the law treats them as legal persons.
In other words, corporations file taxes, can borrow, can own property, can be sued, etc. The idea
that a corporation is a “person” means that the corporation owns its own assets. A corporate
office full of chairs and tables belong to the corporation, and not to the shareholders.

Five types of TRADING

1. Day trader
A day trader makes quick money just buy trading for a few days and then stops.
2. Short term
A short term trader trades only for a week, a month and depends on the events of companies with
good earning in those periods.
3. Options
This type is used by advanced traders/investors and this is not recommended for beginners.
4. 1 to 5 years trader
This type of trading is where by a trader uses the same strategy to buy and hold stocks and
trading monthly.
5. Buy and hold forever
This is where a trader buys and hold stocks with a long term broker account. This is
recommended for beginners.
Before continuing, it is important to understand stock market abbreviations and they will be
decoded going through this research or check the glossary.

Understanding the Different Ways to Buy and sell stock

 The SEC’s office of Investor education and Advocacy is issuing this Investor Bulletin to help
educate investors about the different types of orders they can use to buy and sell stocks through a
brokerage firm.

Market and Limit Orders

The two most common order types are the market order and the limit order.
Market Order
A market order is an order to buy or sell a stock at the best available price.
Limit Order
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can
only be executed at the limit price or lower, and a sell limit order can only be executed at the
limit price or higher.

Special Orders and Trading Instructions

In addition to market and limit orders, brokerage firms may allow investors to use special orders and
trading instructions to buy and sell stocks.

Stop Order
A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of
the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop
order becomes a market order. A buy stop order is entered at a stop price above the current market
price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they
have sold short. A sell stop order is entered at a stop price below the current market price. Investors
generally use a sell stop order to limit a loss or to protect a profit on a stock that they own.

Stop-limit Order
A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a
limit order. Once the stop price is reached, a stop-limit order becomes a limit order that will be
executed at a specified price (or better). The benefit of a stop-limit order is that the investor can
control the price at which the order can be executed.

Trades or stock exchanges are virtual, composed of networks of computers where trades are
made and recorded electronically.
Investing is when you hand over your money so that it is put to use for productive projects such
as growth or expansion. Investing in a factory, in research and development, in a new business
idea – these are all done with the expectation that in the future, the factory, the research, or the
startup will be worth more than the original investment. That means you have a reason to believe
the factory needs to be expanded, or that you understand broadly the type of research being done
and what the payoff might be, or that you understand and believe in the business plan of the new
venture. In other words, investing is a rational decision made with an eye to the future. When
you invest, your money is intended to be put to work increasing value.

It is important for investors to remember that the last-traded price is not necessarily the price at
which a market order will be executed.
In fast-moving markets, the price at which a market order will execute often deviates from the
last-traded price or “real time” quote.
Example: An investor places a market order to buy 1000 shares of XYZ stock when the best offer
price is $3.00 per share. If other orders are executed first, the investor’s market order may be
executed at a higher price.
In addition, a fast-moving market may cause parts of a large market order to execute at different
prices.

In addition, a fast-moving market may cause parts of a large market order to execute at different
prices.
Example: An investor places a market order to buy 1000 shares of XYZ stock at $3.00 per
share. In a fast-moving market, 500 shares of the order could execute at $3.00 per share and the
other 500 shares execute at a higher price.

A limit order is not guaranteed to execute. A limit order can only be filled if the stock’s market
price reaches the limit price. While limit orders do not guarantee execution, they help ensure that
an investor does not pay more than a pre-determined price for a stock.
Example: An investor wants to purchase shares of ABC stock for no more than $10. The
investor could place a limit order for this amount that will only execute if the price of ABC stock
is $10 or lower.

Here we should mention ‘parameters.’ These are values usually set by the trader, which the
algorithm uses in its calculations.
In rare cases the parameters are ‘adaptive’ and are calculated by the algorithm from inputs
received.
Here is an over-simplified algorithm example:
You want to buy 1000 shares of Apple (ticker symbol AAPL) and you are looking at a real-time
data feed. The Time and Sale is printing mostly 100 volume lots hovering between $178.50 and
$179.00 – but a few minutes ago it dipped to $177.00. So you decide to set your Buy algorithm
the task: BUY 1000 shares AAPL at MARKET if trade price touches $177.00

So, algorithmic trading is:

 Trading 100% according to rules

 Can be computerized and programmed into software like Tradestation , NinjaTrader,

etc.
 Can be calculated manually, as long as the rules are followed

 Can be automated, or traded manually

 Can be historically tested and evaluated.

 Is also referred to as mechanical, rules based or systematic trading.

When it comes to judging the current financial performance of a company compared to its peers
or compared to its historical performance, the computer is often just as good as human financial
analysts—and the computer can watch thousands of such companies all at once. Some advanced
quantitative systems can even incorporate news events as inputs: Nowadays, it is possible to use
a computer to parse and understand the news report.
In short if you are able to decode information into bits and bytes a computer can understand, this
can be considered as part of quantitative trading.