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Trade Executions

What Happens When I Place An Order To Buy Or Sell A Micro-Cap Stock?

Online brokerage accounts are not connected directly to the securities markets. If you are trading micro-cap stock shares through an online brokerage account, your order to buy or sell is sent over the internet to your broker who then decides which market to send it to for execution. Your order to buy or sell stock is not instantaneous.

What Options Does My Broker Have For Executing My Trade?

“third market maker”. A third market maker is a firm that is, at any time, ready to buy or sell shares listed on an exchange at prices that are publicly quoted. For shares trading in the over-the-counter (OTC) market, your broker can possibly send the order to a market maker in the stock.

Your broker can route your order to what is called an ECN (electronic communications network) which is a network that automatically matches buy and sell orders at specified prices. Your broker can also decide to send your order to another division of the broker’s firm to be filled out of the firm’s own inventory. This is known as internalization and it allows your broker’s firm to possibly make money on the difference between the purchase and sale price (the spread).

What Is “Payment For Order Flow”?

Payment for order flow refers to the way in which regional exchanges or third market makers will pay your broker for directing your order to that specific exchange or market maker.

What Is A Limit Order?

A limit order is an order to sell or buy a stock at a particular price.

What Is A Market Order?

A market order is an order to buy or sell a stock at the current market price and, unless you indicate to the contrary, your broker will enter your order as a market order.

What Is A Bid Price?

This refers to the highest price that a market maker will pay at any specified time to buy a given number of shares in a micro-cap stock.

What Is The Ask Price?

The ask price is also referred to as the ‘offer’ price and refers to the lowest price at which a market maker will sell a specified number of shares of a micro-cap stock.

What Is The Spread?

The spread is the difference between the bid price and ask (offer) price. There exists a difference between the two prices because the ask price is certainly always higher than the bid price. Market makers make money on the spread when micro-cap stocks are traded.

What Is The Broker’s Mark-Up Or Mark-Down?

The price that an investor pays for a micro-cap stock includes the profits for the broker and the firm to which he is affiliated. The Brokerage firm is required to inform you of the entire mark-up or commission of your trade. Knowing what the mark-up or mark-down amounts are will assist you to assess the overall value of the trade.

Market Basics

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The Basics

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