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Lecture Financial markets and institutions - Chapter 12: Market microstructure and strategies

Lecture Financial markets and institutions - Chapter 12: Market microstructure and strategies presents the following content: Stock market transactions, how trades are executed, regulation of stock trading, how barriers to international stock trading have decreased. | Chapter 12 Market Microstructure and Strategies Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Stock market transactions How trades are executed Regulation of stock trading How barriers to international stock trading have decreased Stock Market Transactions Placing an order Brokerage firms: Serve as financial intermediaries between buyers an sellers of stock Receive orders from customers and pass the orders on to the exchange through a telecommunications network Full-service brokers offer advice to customers on stocks to buy or sell Charge about 4 percent of the transaction amount Discount brokers only execute the transactions Charge about 1 percent of the transaction amount The larger the transaction amount the lower the percentage charged by many brokers Stock Market Transactions (cont’d) Placing an order (cont’d) Investors communicate their order to brokers by specifying: The name of the stock Whether to buy or sell that stock The number of shares to be bought or sold Whether the order is a market order or a limit order A market order to buy or sell a stock means to execute the transaction at the best possible price A limit order differs from a market order in that a limit is placed on the price at which a stock should be purchased or sold Stock Market Transactions (cont’d) Placing an order (cont’d) Stop-loss orders: Are orders where the investor specifies a selling price that is below the current market price of the stock Are typically placed by investors to either protect gains or limit losses Stop-buy orders are orders where the investor specifies a purchase price that is above the current market price Stock Market Transactions (cont’d) Placing an order (cont’d) Placing an order online Many brokers accept orders online, provide real-time quotes, and provide access to information Individual investors maintain more than 5 million online . | Chapter 12 Market Microstructure and Strategies Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Stock market transactions How trades are executed Regulation of stock trading How barriers to international stock trading have decreased Stock Market Transactions Placing an order Brokerage firms: Serve as financial intermediaries between buyers an sellers of stock Receive orders from customers and pass the orders on to the exchange through a telecommunications network Full-service brokers offer advice to customers on stocks to buy or sell Charge about 4 percent of the transaction amount Discount brokers only execute the transactions Charge about 1 percent of the transaction amount The larger the transaction amount the lower the percentage charged by many brokers Stock Market Transactions (cont’d) Placing an order (cont’d) Investors communicate their order to brokers by .