37 lines
2.7 KiB
Plaintext
37 lines
2.7 KiB
Plaintext
Cl,apter 1: Definitions 33
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Market Not Held Order. The customer who uses this type of order is giv
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ing the floor broker discretion in executing the order. The floor broker is not
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held responsible for the final outcome. For example, if a floor broker has a "mar
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ket not held" order to buy, and he feels that the stock will "downtick" (decline
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in price) or that there is a surplus of sellers in the crowd, he may often hold off
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on the execution of the buy order, figuring that the price will decline shortly and
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that the order can then be executed at a more favorable price. In essence, the
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customer is giving the floor broker the right to use some judgment regarding the
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execution of the order. If the floor broker has an opinion and that opinion is cor
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rect, the customer will probably receive a better price than if he had used a reg
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ular market order. If the broker's opinion is wrong, however, the price of the
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execution may be worse than a regular market order.
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Limit Order. The limit order is an order to buy or to sell at a specified price
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- the limit. It may be executed at a better price than the limit - a lower one for
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buyers and a higher one for sellers. However, if the limit is never reached, the
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order may never be executed.
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Sometimes a limit order may specify a discretionary margin for the floor broker.
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In other words, the order may read "Buy at 5 with dime discretion." This instruction
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enables the floor broker to execute the order at 5.10 if he feels that the market will
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never reach 5. Under no circumstances, however, can the order be executed at a
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price higher than 5.10. Other orders may or may not be accepted·on some option
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exchanges.
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Stop Order. This order is not always valid on all option exchanges. A stop
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order becomes a market order when the security trades at or through the price
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specified on the order. Buy stop orders are placed above the current market
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price, and sell stop orders are entered below the current market price. Such
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orders are used to either limit loss or protect a profit. For example, if a holder's
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option is selling for 3, a sell stop order for 2 is activated if the market drops
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down below the 2 level, whereupon the floor broker would execute the order as
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soon as possible. The customer, however, is not guaranteed that the trade will be
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exactly at 2.
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Stop-Limit Order. This order becomes a limit order when the specified price
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is reached. Whereas the stop order has to be executed as soon as the stop price
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is reached, the stop-limit may or may not be filled, depending on market behav
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ior. For instance, if the option is trading at 3 while a stop-limit order is placed
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at a price of 2, the floor broker may not be able to get a trade exactly at 2. If the |