Terms of Trade:Terms you will need to know for the Mock Trading Session.

Bid
The bid is the highest price per share the potential buyer is willing to pay.

Ask
The ask or offer is the lowest price per share the potential seller is willing to take.

Bid-Ask Spread
The quoted bid-ask spread is the difference between the lowest ask price quoted and the highest bid quoted in a specified market. The bid is always lower than the ask.

A narrow bid ask spread indicates a more efficient market.

Example: Trading begins in shares of Discovery Café. Potential buyers and sellers gather at the exchange and enter into the trade system the price at which they are prepared to trade:

Discovery Cafe
Price Buyers' bid Sellers' ask
$30    Emma
 $29 3/4    Frank
 $29 1/2    Elizabeth
 $29 1/4    Anna
 $29  Robert  Harriet
 $28 3/4  George  
 $28 1/2  John  
 $28 1/4  Henry  
 $28  Augusta  

Robert can immediately buy shares from Harriet at $29/share, but there the trading stops. The highest bid is $28 3/4 but no one is willing to sell at that price; the lowest ask is $29 1/4 but no one is willing to buy at that price.

Broker
A Broker is an agent of an investing client. The Broker takes no position in the securities he trades. When a broker makes a trade for a client he charges Commission

Dealer
A Dealer is a Broker who maintains his own position in the securities he trades. When a Dealer makes a trade for a client he charges a Markup.

Market Maker
A Market Maker is a Dealer who guarantees that he will always stand ready to buy and sell shares in the stock in which he makes a market. This ensures that there is always a market for the issue. The market maker must always have a published bid and ask in the issue for which he makes a market.

Specialist
A specialist is the dealer designated by the exchange as the only market maker on the floor of the exchange for specifically assigned stocks. The specialist executes orders for other brokers, keeps the limit order book, and is required to maintain fair and orderly markets.

The specialist also opens the market: he examines the orders which have accumulated since the market close and sets the open price at which the market will clear at the opening bell. Note that this means that although the market is continuous from the opening bell to the closing bell it opens with a call market in which opening price is fixed.

Market Order
A market order is an instruction to buy or sell a security immediately at the best price available.

(example: buy 1000 shares IBM ).

The disadvantage of a market order is that market conditions can change in the interval between the time the order is given and the time it is executed.

Example: IBM closes Thursday at $92. You submit a market buy order for 100 shares Friday at noon. The closing price on Friday is $119. You just invested $11,900 rather than $9,200. If you submitted the buy order because you felt that IBM should rise to $100 then buying at $119 is rather pointless.

UISES will execute a market order at the next market closing price. If your order is time stamped before 3:00 pm then it will be executed at the closing price the same day; if your order is time stamped after 3:00:01 pm then the market is already closed and the order will be executed at the closing price on the next trading day.

Limit Order
A limit order is an instruction to buy or sell at a specific price or better.

(example: buy 1000 shares IBM at $90 (or less)
(example: sell 1000 shares IBM at $92 (or more)

The disadvantage of a limit order is that the order may not be executed at all.

Example: IBM closes Thursday at $92. You submit a limit order to buy 100 shares limit $92. IBM opens at 92¼, increases throughout the day, and closes at $119. Therefore the order is not executed at all and you just missed out on a $27 increase.

Limit Order Book
is the list of outstanding limit orders. These orders will be executed when and if market conditions allow.

UISES receives the closing prices at the end of every trading date. If the closing price is within the limit specified then the order is executed at the closing price. If the closing price is not within the limit specified then the order is returned to the UISES limit order book. UISES will continue to check limit orders as at every market close until the order is either executed or expires.

Stop Order
A stop order is an instruction to buy or sell which becomes a market order as soon as the market price of a board lot reaches a specified level. This type of order is designed to get an investor out of an existing position before any more damage is done. A stop sell order is designed to minimize losses when a stock in which you have a position starts to slide. A stop buy order is designed to minimize losses when the price of a stock you have sold short increases unexpectedly.

(Example: sell 1000 shares IBM stop loss at $70.(stop sell order)
(Example: buy 1000 shares IBM if the price rises to $110 (buy stop order)

The disadvantage of a stop order is that it becomes a market order as soon as the stop price is reached. There is no certainty that it will be executed at that price.

Example: IBM starts to slide, triggering your stop loss order at $70. Your market order goes through at $59 as IBM slides to $50.

UISES receives the closing prices at the end of every trading date. If the closing price triggers the stop then it becomes a market order and is executed at the closing price. If the closing price does not trigger the stop then the order is returned to the UISES limit order book. UISES will continue to check stop orders as at every market close until the order is either executed or expires.

Stop Limit Order
A stop limit order is an instruction to buy or sell which becomes a limit order as soon as the market price of a board lot reaches a specified level.

(Example: sell 1000 IBM stop loss at $90 to $80 (If IBM slides to $90 sell, but don't sell for less than $80.

The disadvantage of a stop limit order is that it becomes a limit order as soon as the stop price is reached. There is no certainty that the order will be executed.

Example: IBM starts to slide, triggering your stop loss order at $90. The market closes friday at $69. Your order is not executed because it became a limit order good only to $80. The following week IBM trades at $55.