Stock Research

Trading stock begins with an investor placing an order, which is informing the stockbroker as to what stock and how much he wants the broker to buy or sell. An order to buy or sell stock at the best possible price at the present time is called a market order. The broker conveys the order to an exchange member on the trading floor, who attempts to get a better price for the buyer by offering a little less. For example, the broker might offer 47 1/8 ($47.12.5) for the stock with a current price of 47 1/4 and see if someone will sell at this price. If the investor were selling, the broker would attempt to get a slightly higher price by offer
say, 47 3/8.
The final sale will then be electronically relayed to the bro¬ker who placed the order.
The investor might also place a limit order, which specifies the highest or lowest price at which the broker may buy or sell. If the investor can’t be accommodated immediately, the broker places the order in a sales book and then tries again in order of priority. If an investor wants to keep the order on the books he can issue an open order that instructs the broker to leave the order on the books until it is executed or canceled.
Sometimes the investor might give a discretionary order, which allows the broker to exercise judgment in making money. The investor leaves it up to the broker to decide when and at what price to buy or sell.
An odd lot is any number of shares less than 100. One hun¬dred shares comprise a round lot. Brokers usually trade shares in lots, odd lots being combined with a series of other small orders to forma round lot. A purchase of 10,000 shares is some¬times called a block sale.
In addition to the price of the stock, the investor pays the broker a commission for buying or selling the securities.
Sometimes investors pay less than the full amount when they buy stock. This is called margin trading. The FRS determines the minimum margin required. In recent years the stock margin has been approximately 50 percent. Fearing that the investor might sell the stock and abscond with the funds, the broker keeps stock certificates of margin accounts at the brokerage as collat¬eral. If the stocks were to plummet, the broker would call the investor and request that he put up more money or have the stock sold.
Active buyers of stock are called bulls. They believe that the prices of stocks are going to rise. During the mid 1980s, the US witnessed a very long bull market. At the 1987 crash even bulls became bears. A bear is an investor who makes a profit when the prices are going to fall. Selling short is a high-risk strategy which bears use in order to do that. They sell borrowed stock in the hope of later buying it on the open market at a lower price. Options are contracts that allow an investor to either buy or sell a security at a predetermined price within a certain time. Depending on the investor’s expectations, he may buy a put option or a call option. A put option grants the owner the right to sell a security. Believing that the price of certain shares will drop over some period of time an investor might buy an option and benefit from selling the shares at the option price to the person who sold the options. A call option grants its owner the right to buy a certain amount of stock at a predetermined price within a fixed period of time.

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