FIN_100_Homework_week_7

For this week's homework assignment, please answer the following questions:

Describe the differences among the following three types of orders: market, limit, and stop loss.

What is a short sale?

Describe buying on margin.

Why is it illegal to trade on insider information?

A market order is an order ready for immediate executor. A limit order is a trade only if the price is beyond a set price or below a set price, these are known as limit sell and limit buys. A stop loss order is an in order to sell stock at whatever the market price is immediately once the price reaches a specific price that has been set.

Short Sale is a sale of securities that are not owned by the trader. The investor wants to short sale a stock if they think that the cost is going down in the future.

Buying on margin refers to the practice of using borrowed funds, and the investor also uses their own personal funds to purchase securities. These purchased securities become collateral for the borrowed funds. The margin is the slightest percentage of the purchase price that the investor’s pay in cash, it is the ratio of the investor’s money invested to the market assessment of security. In order to purchase on margin, the investor must have a margin account with a brokerage firm who arranges the financing with the banks.

Why illegal to trade on insider information? Insider trading is buying or selling stock based on insider information that is not public information. Doing this is illegal because it keeps the market fair to all investors. It also stops company execs, or those who are privileged to know this inside information from using this information in order to make a lot of money. It’s illegal for someone to pass on inside information even if they don’t buy the stock as well if they are getting personal gain from those they pass this information too.