Equity Market Transaction

Types of Equity Market Transaction

• Placing
Placing an Order
Margin Trading
Short Selling
Placing an Order
 Types of Order
 Market Order
an order to buy or sell a secuirity immediately at the best obtainable price.
 Limit Order
an order to buy or sell a secuirity at specified price.

 Buy limit order (stop buy order)

 Sell limit order (stop loss order)
Margin Trading
Margin Trading
• an arrangement in which an investor borrows money
or shares from a broker to finance a transaction.

Stock exchange regulation set “ Margin Requirement”

Maintenance Margin
• the minimum margin that an investor must keep on deposit in
a margin account at all times.

Impact on Return SP = selling price of stock

INV =initial investment by investor,
not including borrowed funds
R= SP- INV- LOAN+D LOAN= loan payments on borrowed funs,
INV including principal and interest.
D = dividends payments
Example
• Consider a stock priced at $40 that pays an annual dividend of $1 per
share. An investor purchases the stock of margin paying $20 per share and
borrowing the remainder from the brokerage firm at 10 % annual interest.
If after 1 year, the stock sold at a price of $60per share. what is the return
on the stock?

R= SP- INV- LOAN+D R= S60-$20-$22+$1

INV $20
R= $19 R= 95%
$20
Short Selling
 Short Selling

• A degree of short position

• Short interest ratio( for specific shares)
• Short interest ratio ( for the market)
The Spread on Stock Transaction
( Bid - ask spread)
 Ask Price
• the price at which market maker is willing to
sell a security.

Bid Price
• the price at which market maker is willing
to buy a security.
 Spread = Ask Price -Bid Price
Ask Price
Example:
Mallari Company stock is qouted by a broker as bid $39.80, ask $40.00.
What is the Bid -ask spread?

Spread = $40.00 -$39.80 Spread = 0.5%

$40.00
The spread is influenced by the following factors.

• Order Cost
• Inventory Cost
• Competition
• Volume
• Risk
Regulation of Stock Trading
• Circui

• Circuit breakers - automatic halts or limitation

trading that are triggered upon the attainment of
certain stipulated price moves.
• Trading halts - a temporary suspension of trading
for particular security or securities at one exchange.
Thank you.!!!