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Week 9: Market efficiency (Trading in the securities markets (Types of…
Week 9: Market efficiency
Trading in the securities markets
Types of markets
Dealer markets: 3rd party (acts as
intermediate
buyer/ seller)
Auction markets: brokers and dealers trade in one location
Types of orders
Market order: execute immediately at the best price
Limit order: order to buy or sell at a specified price or better
Stop loss order: becomes a market sell order when the trigger price is encountered
Stop buy order: becomes a market buy order when the trigger price is encountered
Transaction costs
Commission: fee paid to broker
spread = ask - bid
market impact: for large transactions
Margin trading
buying on margin: borrowing money to purchase share
initial margin requirement: difference between investment value and loan value
maintenance margin requirement
margin call
Short sale