Mechanics of stock exchange transaction
Account executive/stockbroker – individual who buys
and sells securities for clients employed by brokerage firms. To trade at a
particular exchange the broker firm must be a member of that exchange. For
example at NYSE a membership costs more than 2 million. Mechanics of
transaction: once an investor and his stockbroker have decided on a
particular transaction, the investor gives the broker an order for that
transaction. Market order – stock to be bought/sold at current market
price. Limit order – stock bought/sold at price equal or better (lower
for buying, higher for selling) than some specified price. Discretionary
order – broker decides when to execute transaction, and what price: great
authority, case of mistake investor suffers the loss. Commissions: free
to set them but depends on competition too. Full
service brokers – info, advice, security trade charge higher fees than discount brokers –buy/sell only. On
trading floor stocks are traded in round lots – unit of 100 shares. Odd lot –
fewer than 100 so charge higher per share fee for trading. Commissions for
trade bonds, commodities, options are lower that for stocks – 1000$ corpor bond
charge 10$. Commission is paid when buying or when selling. Payment required
within 5 bizdays. Broker goals: help investors sell/buy, promote his/its
interests. Speculators – people active buy sell shares: bulls buy expect price
rise, bears sell expect price to fall, stags buy new shares expect price rise
and sell them for a quick profit. Share index – representative group of
shares chosen as barometer of the movement of market as a whole – shares state
in market.
