Describe the Differences Among the Following Three Types of Orders: Market, Limit, and Stop Loss. Provide Examples of Each in Your Own Words .
A market order is an appeal by an investor, generally made by an agent to purchase or sell a share at the current prices in the market. It best suited for securities that are sold in large volumes. For instance, if the price of the stock is $20, an investor will be ready to purchase it at the prevailing price in the market of $20.
Delegate your assignment to our experts and they will do the rest.
A limit order is a demand to buy or sell a stock at a specified price or a better price. An investor buying the security can only purchase it at the specified limit price or a price than the specified price, on the other hand, a trader can only sell at the limit price or a higher amount (Beers, 2020) . For instance, if an investor wants to buy securities worth $10, he or she can either purchase the security at $10 or a lesser price.
A stop-loss order is an order to sell or purchase the stock immediately; the stock price reaches a fixed price. For instance, investors can wait until the price of the stock reaches $ 15 to purchase.
What Is A Short Sale? Provide an Example in Your Own Words
A short sale is a form of contract that whereby an investor sells borrowed security with an expectation of a price decline, the seller is then required to return the same number of shares in the future. For instance, an investor can borrow 100 shares at $ 20 each, if the price of share decreases to $10. The investor will have to purchase 100 at $10. In this case, the investor will capture the difference between the amount from the short sale and the amount he paid, which is $1000.
3. Describe Buying on Margin. Provide an Example in Your Own Words .
Buying on margin occurs when an investor purchases an asset by paying the initial payment and borrowing the balance from a financial institution (Chen, 2020) . An investor can buy 50 shares from a particular company at $10 per share, decide to pay half the price of the shares and borrow the other half. After one year, the prices of the share can increase to $20, and the investor can sell the share and pay the amount of money he or she borrowed.
Why is it Illegal to Trade on Insider Information? Provide an Example in Your Own Words.
An insider trading is illegitimate since it provides the insider with an unfair benefit in the market, and it put insider interest above those whom he or she is indebted and offers him the capability to preciously influence the price of company shares (Kennon, 2020) . For example, the announcement of a tender deal in an organization will likely benefit those people working inside the company.
References
Beers, B. (2020, May 23). Market Order, Limit Order and stop-loss order: What is the difference? Investopedia: https://www.investopedia.com/ask/answers/100314/whatsdifference-between-market-order-and-limit-order.asp
Chen, J. (2020, May 7). Buying on Margin . Investopedia: https://www.investopedia.com/terms/b/buying-on-margin.asp
Kennon, J. (2020, July 29). What Is Insider Trading ? The balance: https://www.thebalnce.com/what-is-insider-trading-and-why-is-it-illegal-356337
