Description
- Describe the differences among the following three types of orders: market, limit, and stop loss. Provide examples of each in your own words.
- What is a short sale of stock? Provide an example in your own words.
- Use your textbook to define the term short sale as it pertains to stock.
- Describe buying on margin. Provide an example in your own words.
- Why is it illegal to trade on insider information? Provide an example in your own words.
Note: Write responses and definitions in your own words—do not copy and paste from the Internet. Use the attached template for this assignment.
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Week 7 Homework: Definitions
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FIN100: Principles of Finance
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Week 7 Homework
Instructions: Please respond to the following questions:
1. Describe the differences among the following three types of orders: market,
limit, and stop loss. Provide examples of each in your own words.
A market order is the simplest and most common type of order and is used to buy
or sell a security instantly. It offers assurance about the execution of the order. However,
it offers no assurance about the order’s execution price. This means that the risk of the
price going under or above one's desired price is a possibility and that what one gets may
be less than what was recorded in the order that they filled (U.S. Securities and Exchange
Commission,1). For example, let us assume that the current price of company A's shares is
$150. If a trader wants to buy or sell as soon as possible, they will use a market order. The
stock will be sold or purchased immediately at the prevailing trading price.
On the other hand, a limit order facilitates the sale or purchase of a security at a
specific price. Limit orders are considered to be the best way to trade. For a buy limit trade,
a security is only bought when its price is equal to or lower than the set price, while for a
sale limit trade, the security is only sold at the limit price or a higher value (U.S. Securities
and Exchange Commission, 1). For example, if a trader wants to buy company A's sha...
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