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208060
Orders and Market Execution
Description
Bachelor's degree Trading and Dealing (The Structure of Trading) Mind Map on Orders and Market Execution, created by Vhia Rose on 14/09/2013.
No tags specified
the structure of trading
trading and dealing
trading and dealing
the structure of trading
bachelor's degree
Mind Map by
Vhia Rose
, updated more than 1 year ago
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Created by
Vhia Rose
about 11 years ago
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Resource summary
Orders and Market Execution
Order types
Limit orders
Specifies a maximum/minimum price
Market orders
Large orders may cause market impact
Execution price uncertainty
Marketable limit orders
Marketable
At the market
Behind the market
Standing limit orders
"options" that offer liquidity
Stop loss orders
Destabilise prices by demanding liquidity when least available
Order activated when price rises/falls to stop price
Tick Sensitive Orders
Conditional on last price change
Market-not-held orders
Best possible execution decided by broker
Market Execution Structures
Quote-driven dealer markets
Posts quotes to buy or sell where ask price>bid price
Dealer profits from bid-ask spread
Examples: NASDAQ, FX, Bonds, Derivatives
Order driven markets
Use trading rules to arrange trades
Oral auctions
Open-outcry trading floors
Physical location
Easier to enforce rules
Rules: best bid/offer price accepted, first in first served, public orders first
Single price auctions
Uniform price used (uncertainty about true value of stock)
Fair to both informed and uninformed investors
For very illiquid stocks
For insufficient technology
Rules: uniform pricing (clearing price where supply=demand)
Continuous electronic auctions
Limit order book with bid and ask schedules for certain price and quantity
Investors submit orders with brokers who act as intermediary
Attachments:
Brokers
Rule: price and time precedence, discriminatory pricing, matching procedure
Crossing networks
Match buy and sell orders without knowing public quotes
OR Place orders anonymously so no-one knows who's trading
Rule: derivative pricing rule
But, can lead to stale prices, adverse selection
Tempts traders into price manipulation
Classification based on liquidity provision and frequency of trading
Brokered Markets
Broker's role in finding liquidity
Hybrid/multiple markets
Mix characteristics of quote driven, order driven and brokered markets
NYSE
Floor traders (order driven)
Electronic limit order book (order driven)
Designated dealer to provide liquidity (quote driven)
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