ADMS 3530 Lecture : Extra Info.doc

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brownwoodchuck850

12 Jun 2014

School

York University

Department

Administrative Studies

Course

ADMS 3530

Professor

all

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Document Summary

Market order: an instruction to buy or sell a specified number of shares of a specified company. Market orders wait in a queue and are risky because the order will be filled at whatever the price currently is. By the time the order is filled/executed, the price could be very different from when the investor places the order, especially when the market is volatile with high volumes of trading. Limit order: when an investor specifies a limit price when placing an order to buy or sell shares. If the broker cannot fill/complete the order at the limit price or better the order will expire at the end of the day and not be completed. Stop order: an instruction to place a market order to buy or sell, once a specific stop price is crossed. If the stock"s market price fluctuates and hits the stop price, the market order enters the queue and there is no guaranteed price for the trade.

Related Questions

A. A stock has been trading at $37.50 per share for some time. It would make sense for an investor to enter a limit buy order at ______ per share or a limit sell order at ______ per share.

B.An investor shorted stock that is currently trading at $55.50 a share. She is now worried about taking losses from an unfavorable price move, although she is not yet ready to close out the position. It may make sense for the investor to enter a ______________ order at ______ per share.

C. You buy 510 shares of stock that are priced at $48 a share using the full amount of margin available. The maintenance margin requirement or MMR is 35%. At what stock price do you get a margin call?

D. You buy 165 shares of stock that are priced at $38 a share using the full amount of margin available. The broker charges you a 3% interest rate on the margin loan. If you sell the stock in one year for $37 a share what was your rate of return?

QUE

(a) Al Cromwell places a market order to buy around lot of Thomas, Inc., common stock, which is traded on theNYSE and is currently quoted at $50 per share. Ignoring brokeragecommissions, determine how much money will Cromwell probably haveto pay. If he had placed a market order to sell, how much moneywill he probably receive? Explain.

(b) Imagine that you have placed a limit orderto 100 shares of Sallisaw Tool at a price of $38, although thestock is currently selling for $41. Discuss the consequences, ifany, of each of the following situations.

(i) The stock price drops to $39 per share two months beforecancellation of the limit order.

(ii) The stock price drops to $38 per share

(iii) The minimum stock price achieved before cancellation ofthe limit order was $38.50. When the limit order was cancelled, thestock was selling for $47.50 per share.

(c) You have been researching a stock that youlike, which is currently trading at $50 per share. You would liketo buy the stock if it were a little less expensive âsay, $47 pershare.

You believe that the stock price will go to $d70 by year andthen level off or decline. You decide to place a limit order to buy100 shares of the stock at $47 and a limit order to sell it at $70.It turns out that you were right about the direction of the stockprice, and it goes straight to $75. What is your currentposition?

(d) You own 500 shares of Ups &Downs, Inc.,stock. It is currently price at $50. You are going on vacation, andyou realize that the company will be reporting earnings while youare away. To protect yourself against a rapid drop in the price,you place a stop-limit order to sell 500 shares at $40. It turnsout the earnings report was not so good, and the stock price fellto $30 right after the announcement. It did, however, bounce back,and by the end of the day it was back to $42. What happened in youraccount?

magentakoala436

Alex Dale is a portfolio manager at ADIA Investment Company inEurope. Alex would like to buy 50,000 shares of alpha stock whichis a new IPO that was previously offered at Â£30, but unfortunatelyhe couldnât get any shares of it. Now, he is still interested inthese shares, but not at a price that is greater than Â£45. JillJones works for The Global Brokerage House, which providesexecution services for ADIA. In his conversation with Alex, Jillhas suggested that a market order is most suitable for the trade.Alex is also interested in using a market order to sell a largeblock of Gamma shares. However, he is worried that if he instructeda selling using a market order the price would decline and he loseson the value of the deal. Jill argued that this should not be aproblem as automated order driven trading systems provide specialarrangements for small trades (which are often market orders) aswell as for block trades. Alex is also interested in reducing thecost of selling of his Christian Dior shares, Jill suggested thathe should use European electronic crossing network to sell some ofhis shares. She told Alex that these networks are cheap, preserveanonymity and allows for 6 crossing opportunities of trades perday. They also allow participants to place some restrictions suchas price and minimum fill. All orders submitted to the network isgood for day which is means that any unfulfilled part of an orderis automatically resubmitted to subsequent crossing sessions duringthe day. Following Jillâs advice, Alex has submitted his 150,000 CDshares to be sold in the European crossing network with a minimumfill of 125,000. The following orders are on the network for theshares of CD at the time of the first crossing session of the day.The most recent trading price of CD at the Paris Bourse is â¬ 37. ï·A order: a market order to buy 100,000 shares ï· B order: a marketorder to sell 50,000 shares ï· C: an order to buy 20,000 shares at â¬36 In the next crossing session new orders are submitted. The mostrecent trading price of CD at the Paris Bourse is â¬ 38. ï· D order:a market order to buy 150,000 shares ï· E order: A market order tosell 50,000 In her speech to buy side clients Jill has made thefollowing statements about electronic communication and crossingnetworks (ECNs): Statement 1: Electronic communication networks areorder driven systems, in which the limit order book plays the acentral role Statement 2: Electronic crossing networks anonymouslymatch buy and sell orders by a pool of participants, generallyinstitutional investors and broker dealers Statement 3: In an ECN,a trade takes place only during a crossing session time and only ifthere are offsetting orders entered by other participants.

Task: 1. For buying alpha shares, should Alex place a marketorder or a limit order? What would be the advantage anddisadvantage of each type of order, given his purpose? (2 Marks) 2.In selling a large block of Gamma shares explain Jillâs argumentthat automated order driven trading systems must provide specialarrangements for small and large trades? (1 Mark) 3. In the firstcrossing session discuss what trades would take place on thecrossing network and what orders remain unfilled? (2 Marks) 4. Inthe second crossing session discuss what trades would take place onthe crossing network and what orders remain unfilled? (2 Marks) 5.Which of Jillâs statement about electronic communication andcrossing networks (ECNs) is true? Justify your answers. (1 Mark) 6.Indicate how you would assess the quality of financial markets? (2Marks)

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ADMS 3530 Lecture : Extra Info.doc

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