Types of Markets
                           Stock Exchanges
                                Trading of stocks listed in an exchange
                           OTC Trading
                                Trading ‘over the counter’ or outside a stock 
                                exchange, in dealer networks
                           ECNs
                                Electronic Communication Network is an 
                                electronic system that allows order execution 
                                between exchanges and dealer networks
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                                                            9781442502000 / Berk/DeMarzo/Harford / Fundamentals of Corporate Finance / 1  edition
                          Trading Mechanics
                           Types of orders
                           Short selling
                           Buying on the margin
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                                                            9781442502000 / Berk/DeMarzo/Harford / Fundamentals of Corporate Finance / 1  edition
                          Types of orders
                             Instructions from investors to brokers
                             Market order
                                     buy/sell order to be executed at best price
                                         -- get lowest price for buy order
                                         -- get highest price for sell order
                                     market orders given priority in trading
                                     no guarantee of execution price
                                                                      Copyright © 2011 Pearson Australia (a division of Pearson Australia Group Ltd) –
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                                                            9781442502000 / Berk/DeMarzo/Harford / Fundamentals of Corporate Finance / 1  edition
                          Types of orders
                             Limit order
                                     buy/sell order where investor specifies price 
                                         range
                                     “buy at $50 or less”
                                     “sell at $52 or more”
                                     investor sets reservation price but no 
                                         guarantee that limit order will be executed
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                                                            9781442502000 / Berk/DeMarzo/Harford / Fundamentals of Corporate Finance / 1  edition
                          Types of orders
                             Stop order
                                     order lies dormant 
                                     turns into market order when certain price 
                                         (“the stop”) is reached
                                             “buy if price rises to $60”
                                             “sell if price falls to $58”
                                     investor does not have to watch market but 
                                         in a volatile market stop could be triggered 
                                         prematurely
                                                                      Copyright © 2011 Pearson Australia (a division of Pearson Australia Group Ltd) –
                                                                                                                                              st
                                                            9781442502000 / Berk/DeMarzo/Harford / Fundamentals of Corporate Finance / 1  edition