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February 2017
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Stocks, also called equity shares or share of stock, are shares of ownership in a corporation.  Traders, investors and wealth accumulators who purchase stocks are known as shareholders.  They are primarily issued in two forms, common stock and preferred stock.  Common stock typically carries voting rights that can be exercised in corporate decisions.  Preferred stock typically does not carry voting rights but instead is entitled to receive a dividend payment before any dividends can be issued to other shareholders.  Another form that stocks that can be issued as are convertible preferred stocks which can be changed into a fixed number of common shares at an agreed upon date.

          Stocks can be bought or sold via an online broker or a discount broker.  There are several different brokers with different pricing structures.  The two main pricing structures are; the bulk trade or price per share. 

Here are some examples of trade orders placed in a brokerage account.

Buy 500 Shares of SJR at limit order $15.55 (In this case, you are buying 500 shares of Shaw Communications, Inc whose ticker is SJR.  The limit order means that you are not willing to pay more than $15.55 per share.  You could of also selected open market.  If you purchase at the open market, you will usually be closer to the ASK price for a stock.  Every stock has a BID and ASK, and the difference of the two is called the stock spread.  Highly traded stocks have much narrower spreads and rarely traded ones have much higher spreads. )

Sell 500 shares of SJR at open market (In this order, you have now just sold your 500 shares at the current market rate which will be closer to the BID price.)

Sell short 1000 shares of GS limit order $149 (Here you have placed an order to borrow 1000 shares of Goldman Sachs from a broker and sell it for the minimum of 149a share.  You do this when you believe a stock will go down.)

Buy to cover 1000 shares of GS limit order 146 (Now, you closed your previous short position by agreeing to purchase 1000 shares of Goldman Sachs back at 146 and returning the shares to the broker.)

The Market

Primary Market is where the stock is first issued and listed.  A company has to take several steps to go public.  First, it selects a brokerage firm to act as underwriter to assist in preparation of the legal, financial and regulatory documents needed to conduct an IPO.  The first draft of a prospectus the company files with the SEC is called the red herring.  Once the red herring is approved by the SEC, the underwriter can prepare and circulate a final prospectus detailing the price and other information for the stock to be issued.  This new company stock is called an IPO.

Secondary Market is where investors and buy and sell stocks.  The SEC mandated the creation of the Intermarket Trading System (ITS) linking exchanges to protect investors and to ensure fair prices.

Third Market is where trading takes place directly between institutional investors and brokers-dealers.  It is also known as the “UPSTAIRS” market, it represents the network of brokerage desks that handles large transactions (blocks).

Fourth Market is where trading of securities with no interaction with the broker directly between institutions on an ATS.

Stock price

The primary factor affecting a company’s stock price is EARNINGS and EARNINGS OUTLOOK!  This can be clearly seen from March of 2009 when companies were gloomiest on earnings outlook (bottom of the market) and sense than, forecast for earnings have been improving (July’s high).

Many other variables play a lesser role on affective a company’s price.  Some of these include, profit, debt, market share, cash flow, revenue growth, risk, dividend and etcetera. 

Types of stock orders

Basket order – Is a batch of individual orders submitted simultaneously as a package (a common arbitrage strategy for the very end of the day)

Bracket order – Is a type of order that simultaneously entering a stop order and a limit order used to limit the downside risk while locking in possible profits when exiting a position.

Conditional order – Is a type of order that will be submitted or canceled when some preset criteria are met (all-or-none, fill-or-kill, and immediate-or-cancel).   All-or-none means the entire order must be executed at one go.  Fill-or-kill means the entire order must executed within a specific timeframe.   immediate-or-cancel means any part of the order that is not immediately executed is canceled.

Discretionary order – Is a type of order that is a limit order with a price range near its limit.

Good Till order – Is a type of order that is good until a date or time.

Goldman High Frequency order – Is a type of order that profits from front running or co location profit optimization.

Limit order – Is a type of order to buy or sell shares at a certain price.

Market order – Is a type of order that buys at the bid or sell at the best price available at the time.  (My opinion is never to do market orders when the market opens or is about to close unless you know exactly what you are doing)

Pegged order – Is a type of order that tracks the spread between the best bid and the best offer (inside quote).

Shorting order – Is a type of order that an investor can borrow the stock they want to short from their brokers and buy to cover at a later day.  (Hopefully at a cheaper price)

Stop order – Is a type of order to be executed at the best market price available when a certain price level has been reached.   A stop-limit order is to be executed at a specific price until a price target is reached.   A stop-loss order is to be executed at a specific set price that triggers a sell order. 

Types of traders

Algorithmic traders – Is a trader that trade stocks utilizing a computer program that automatically generates orders and executes them.  (PS, only as good as their models, ability to collect real-time market data, super-fast broadband access to markets and a subpar smart-router to achieve those goals)

Fundamental traders – Is a trader that trade stocks by studying fundamentals to try to evaluate a stock, based on its intrinsic value.  They are also referred to as the buy and hold types.  They find companies they like, need and use and invest long term in them.

Momentum traders – Is a trader that trade stocks that move in one clear direction in heavy volume. They get in and out of their position very quickly depending on volume data.  They are continuously watching to exit before saturation or when the volume between buy and sell orders is close to equilibrium, meaning that the momentum is up for grabs.

Scalpers – Is a trader that trade stocks frequently throughout the day with the goal of trying to pocket small but relatively risk-free profits from the bid-ask spread and compounding their gains.  (The new breed of day trader)

Swing traders– Is a trader that trade stocks that lack volatility, trying to buy in the dips and sell in the spikes within a price range.  Swing traders are known for getting bent when the market crashes or bulls run wild.

Technical traders – Is a trader that trade stocks by charts using signs of convergence & divergence or the deviation from a benchmark or reference point.  Their reasoning is that stock price patterns that have emerged in the past will be repeated.  Fibonacci sequence and Elliott Wave theory are some methods for technical analysis trading.

*Alphas Edge trader – Is a trader that trades stocks based on the goal of wealth accumulation.  These traders are a hybrid of various different trader types and strive to master all equities and their relationship to each other.