Personal Finance 14.6

Stockbroker/Account Executive professional who is licensed to buy and sell securities on the behalf of the brokerage firm’s clients
Securities street name securities certificates kept in the brokerage firm’s name instead of the name of the individual investor
Cash account a brokerage account that requires an initial deposit (perhaps as little as $100) and specifies that the full settlement is due to the brokerage firm within 3 business days after a buy or sell order has been given
Discount brokers charge commissions to execute trades that are often 30 to 80% less than the fees charged by full-service brokers, but also offer fewer services
Online Brokers such brokers, also called internet or electronic brokers, have reduced the cost of executing a trade to perhaps $20 to $10 b/c their primary business is online trading
Day trading occurs when an investor buys & sells stocks quickly throughout the day w/ the hope that prices will move enough to cover transaction costs and earn some profits
General (full service) brokerage firms offer full range of services to customers, including investment advice and research
Round lots standard units of trading 100 shares of stock & $1000 or $5000 par value for bonds
Odd lot less than the normal unit of trading for that particular security; for any stock, any transaction less than 100
Floor broker brokerage firm’s contact person at an exchange
Specialist person on floor of an exchange who handles trades of a particular stock in an effort to maintain an orderly and fair market
bid price declared highest price anyone wants to pay for a security
ask price declared lowest price that anyone is willing to accept to sell a security
Spread represents difference b/t bid price at which a broker/dealer will buy shares and higher ask price at which the broker/dealer will sell shares
Market order instructs the stockbroker to execute an order at the prevailing market price– that is, the current selling price of the stock
Limit order instructs the stockbroker to buy or sell a stock at a specific price
Broker/dealer a brokerage firm representing a buyer that communicates w/ another brokerage firm that has the desired securities, thus in effect “making a market” for one or more securities
Market making a broker/dealer who both buys and sells securities by maintaining an inventory of specific securities to sell to other brokerage firms and stands ready to buy reasonable quantities of the same securities at market prices.
Stop order instructs a stockbroker to sell your shares of stock at the market price if a stock declines to or goes below a specified price
Margin account account at a brokerage firm that requires a substantial deposit of cash or securities and permits the purchase of other securities using credit granted by the brokerage firm
Margin buying using margin account to buy securities: allows investors to apply leverage that magnifies returns– or losses
Margin rate set by the Fed, percentage of the value (or equity) in an investment that is not borrowed– recently 25 to 40%
Margin call if a stock price declines to the point that the investor’s equity is less than the required %age, a rep of the brokerage calls & tells the investor to either put up more money or have the position liquidated
Buying long buying a security (especially on margin) w/ the hope that the stock price will rise
Selling short investors selling what they don’t own (borrowing from broker) & later buying the same # of shares at lower price (returning them to the broker)
Covering a position an investor using margin account buys back securiteis sold short or sells securities bought long

Leave a Reply

Your email address will not be published. Required fields are marked *