Compare broker and dealer
- Brokers: ABC (Agency trades executed by Brokers and they charge Commissions) [e.g. Schwab]
- Brokers: don't assume risk
- Dealers: PDM (principal trades are executed by Dealers and they charge Markup/downs) [e.g. Citadel]
- Dealers do assume risk
What are markups and markdowns?
A certain increase/decrease to the bid/offer at which the dealer will buy/sell with the retail client.
What is the FINRA 5% policy?
- The policy is a guideline that limits commissions, markups, and markdown (limit to 5%)
- Liquidity, amount of money, price, type of security may warrant more or less
- The type of client or the firm's profit will not
What are the 3 types of transactions?
- Purchase (pay in full or on margin)
- Long sale (sale of securities that are owned by the customer)
- Short sale (borrow, deposit margin) which includes uncovered options sales
What are the types of orders?
- Market order: order executed immediately at the customer's quantity
- Limit order: Order only executed if the customer's size and price can be met
- Stop order: May be used to limit a lsos or protect a gain. Doesn't guarantee a specific price