HACE 3200 1nd Edition Lecture 23Outline of Last Lecture I. Stock ExchangeII. ProspectusIII. Investing vs. LendingIV. Rates of ReturnOutline of Current LectureI. SecuritiesII. Trading through BrokersIII. Investing in StocksCurrent Lecture- How securities are Tradedo NYSE and AMEX are continuous markets: trading occurs when the exchanges are open “opening bell”- How securities are Traded:o 1. Specialistso 2. Brokerso 3. Online- 1. Market Specialist (at the exchange)o An exchange member who oversees trading in one or more stockso Maintains order in the market. To reduce fluctuation.o Buy and sell stock from inventory to relieve price changes- Securities Priceso Unlike most things you buy, both buyer and seller set stock priceso The buyer states what price they will pay for shares- this is the bid priceThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o The seller states what price they will sell shares- this is the asked price.- 2. Trading through Brokerso A stock broker is simply someone licensed to buy or sell stocks for otherso Most financial planners are stock brokers Discretionary account: broker authorized to make trades for you. Exercise caution, or avoid- Churning.- 2. Trading Through Brokerso The broker sends the order out to the floor of the securities exchange by computer or by phoneo The broker supplies the client with the price. The buyer pays for the stock and the brokers transfers the title of the stock to the client.- Brokerage Firmso Full serviceo Discount service( 50-70% off)o Deep discount service( 90% 0ff)o On-line discount and deep discount service.- Buy and Sell Order Sizeso Round lots—orders of 100 shareso Odd lots-- order of 1 to 99 shares- Time Period the Order Will Remain Outstandingo Day orders—good until the end of the trading dayo Open orders( GTC)—good until filled or cancelledo Fill or Kill orders—mist be filled or canceled immediately - Order Typeso Market Orders—an order to sell or buy a specific number of shares at the best available priceo Limit orders- an order to sell or buy a specific number of shares at a certain price or better.- Order types( cont’d)o Stop( or stop-loss) orders- an order to sell a specific number of shares if the stockfalls below a certain price or buy a specific number of shares if the stock rises above a certain price.- Regulation of the Securities Marketso Securities and Exchange Commission( SEC) federal regulationo National Association of Securities Dealers( NASD) OTC regulationo Securities Act of 1933—requires disclosure of relevant financial information in a timely manner- Chapter 13: Investing in Stockso Basics of Investing in Stocks Stock is a share in the ownership or a company- Why would a company offer this? Stock represents a claim on the company’s assets and earnings Whether you say shares equity or stock it all means the same thing- Company Ownershipo One vote per share to elect the board of directors at annual meetings is the extent to which you have a say in the companyo Just because you have shares in Barnes and Noble does not mean you can go help yourself to free books- Stock Certificateo A fancy piece of paper proves your ownershipo In today’s computer age, your brokerage keeps these records electronically - Stock Basics: Buying Stockso 1. Using a Brokerage firm full service brokers discount brokerso 2. DRIPS & DIPs Dividends Reinvestment Plans( DRIPS) and- Brokerage Firmso Charles Schwab Corporationo Morgan Stanleyo Edward Jones- When brokerage firms go busto Customer’s accounts are generally safe, they cant be liquidated to save the firm Securities investment protection corporation- Why consider Stocks?o Over time, common stocks outperform all other investmentso Stocks reduce risk through diversificationo Stocks are fairly liquido Growth of investments determined by more than just interest rates- Stock Indexes: measuring the Movements in the Marketo Dow Jones Industrial Average ( DJIA) Tracks 30 blue- chip stocks General Electric is the only original stock still on the index Others: Intel, Walt Disney, Microsoft, Boeing, Caterpillar NASDAG Standard & Poor’s 500 Stock