SECONDARY MARKETS. Function of Secondary Markets Trading Locations Market Structures Perfect Markets . CONTENTS. There are actually two levels of the capital markets in which investors participate: . Primary Markets Secondary Markets.
TYPES OF ORDERS
The simplest type of order is the market order,an order
executed at the best price available in the market.If more
buy orders and sell orders reach market at the same time,
the price can obtain.Buyers give priority offering lower price.
Sellers give offering higher price.
If there are more than one order at the same price.The
priority rule is based on the time of arrival of the order.
adverse move may take place between the
time the investor places the order and the
time the order is executed.
It designates a price treshold for the execution of
trade.It is a conditional order.
A buy limit order indicates that the security may be
purchased only at the designated price or lower.
A sell limit order indicates that the security may be
sold at the designated price or higher.
with no guarantee it will be executed at all.
The designated price may not be obtainable.
Stop order specifies that the order is not be
executed until the market moves to a designated
price at which time it becomes a market order.
A stop order to buy specifies that the order is
not to be executed until the market rises to a
A stop order to sell specifies that the order is
not to be executed until the market price falls
below a designated price.
1-Security prices sometimes exhibit abrupt price changes.
2-Stop order can be subject to the uncertainty of the execution price.
This order becomes a market order if a designated
price is reached.However,amarket-if-touched order
to buy becomes a market order if the market falls to
a given price.Amarket-if-touched order to sell beco-
mes a market order if the market rise to a specified
Orders may be placed to buy or sell
at the open or close of trading for the
day that is time specific orders.
For common stock,orders are also classified
by their size.
Suppose that an investor expects that the price of a
security will decline and wants to benefit should price
WHAT CAN THE INVESTOR DO
without owning it.This practice of selling securities
that are not owned at the time of sale is referred
to as selling short.
A profit will be realized if the purchase price is
less than the price that the investor sold short the
sale may be executed in order to prevent
investors from destabilizing the price of a
stock when the market price is falling.
1-The sale price of the particular stock is higher than the last trade price(It is referred to as an uptick trade)
2-There is no change in the last trade price of particular stock and the previous trade price must be higher than the trade price that preceded it.(It is referred to as a zero uptick.)
A transaction in which an investor borrows to buy additional securities using the securities themselves as collateral is called buying on margin.
The funds borrowed to buy the additional stock will be provided by a broker, and the broker gets the money from a bank. The interest rate that banks charge brokers for these transactions is known as the call money rate (also called the broker loan rate).
in real markets
Brokers aid investors by collecting and transmitting orders to the market, by bringing wiilling buyers and sellers together,by negotiating prices,and by executing order. The fee for these service is the broker’s commission.
The fact of imbalances explains the need for the dealer or market maker, who stands ready and willing to buy a financial asset for its own account.
Dealers have to be compensated for bearing risk. A dealer’s position may involve carrying inventory of a security(a long position) or selling a security that is not in inventory(a short position).
In an operationally efficient market investors can obtain transaction services as cheaply as possible given the costs associated with furnishing those services.
Firstly United states exchanges were forced to adopt a system of competitive and negotiated commissions.
The expected return =
initial price of share is 10 TL.
The end of the year share price will be 12 TL.
Dividents of company is 1.50 TL.
The expected return = 1.50+2/10
3.5/10 = % 35 is rate of expected return
In defining the relevant information set that
prices should reflect. Pricing efficiency of a
market was classified in three forms.
Weak efficiency : means that price of the security reflect the past price and trading history of the securities.
Semi-strong efficiency : means that the price of the security reflects all public information which includes but isnot limited to historical price and trading patterns.
Strong efficiency : exists in a market where the price of security reflects all information whether or not it is publicly available.