SIE Trading Markets & Order Types

Primary Market

Market where NEW securities are issued and sold for the first time. | • Issuer receives proceeds from sale | • Examples: IPOs and new bond offerings | | REMEMBER: Primary = Issuer gets money.

Secondary Market

Market where EXISTING securities trade between investors. | • Issuer does NOT receive proceeds | • Examples: NYSE and Nasdaq trading | • Provides liquidity for investors.

Third Market

Exchange-listed securities traded OVER THE COUNTER (OTC), rather than on the listing exchange. | | REMEMBER: Listed stock + OTC trading = Third market.

Fourth Market

Direct trading between institutions without a traditional broker-dealer intermediary. | | REMEMBER: Institution to institution.

Broker vs. Dealer

BROKER: Acts as agent, executes trades for customers, generally earns commissions. | | DEALER: Acts as principal, trades for its own account, earns markup/markdown or spread. | | Broker = Agent. | Dealer = Principal.

Bid vs. Ask

BID: Price a dealer is willing to PAY to buy a security. | | ASK: Price a dealer is willing to ACCEPT to sell a security. | | Ask is generally higher than bid. | | Spread = Ask − Bid.

Market Order

Order to buy or sell immediately at the best available market price. | | • Execution generally prioritized | • Exact price NOT guaranteed | | REMEMBER: Speed, not price.

Limit Order

Order to buy or sell at a specified price or BETTER. | | • Buy limit: At or BELOW limit price | • Sell limit: At or ABOVE limit price | • Execution NOT guaranteed | | REMEMBER: Price protection.

Stop Order

Becomes a MARKET order when the stop price is triggered. | | • Buy stop: Usually placed ABOVE current market | • Sell stop: Usually placed BELOW current market | • Execution price NOT guaranteed | | Often used to limit losses or protect gains.

Stop-Limit Order

When stop price is triggered, order becomes a LIMIT order. | | • Controls minimum sell or maximum buy price | • Execution NOT guaranteed | • May remain unfilled if market moves past limit | | REMEMBER: Stop triggers; limit controls price.

Long vs. Short Position

LONG: Investor owns security; profits if price rises. | | SHORT: Investor sells borrowed security; profits if price falls. | | Short selling has potentially unlimited loss risk if price rises.

Short Sale

Sale of borrowed securities with obligation to return equivalent shares later. | | • Investor expects price to fall | • Requires margin account | • Subject to Regulation SHO | • Potential losses are theoretically unlimited.

Regulation T

Federal Reserve regulation governing credit extended by broker-dealers. | | Initial margin requirement for most marginable equity securities is generally 50% of purchase price. | | REMEMBER: Reg T = 50% initial margin.

Margin Account Equity

LONG ACCOUNT: | Equity = Long market value − Debit balance. | | Example: | Stock value: $20,000 | Loan (debit): $8,000 | Equity: $12,000 | | Maintenance requirements also apply.

Trade Settlement (T+1)

Most U.S. stocks, corporate bonds, municipal bonds and ETFs settle T+1. | | T = Trade date | +1 = One business day later. | | Example: Monday trade → Tuesday settlement, assuming no holiday.