Market Structure and Trading Flashcards

Dark pools are best described as:

Answer: Private trading venues that do not display quotes publicly

Dark pools are private trading venues where large orders can be executed without showing quotes to the public market.

A stop order (stop-loss order) becomes a market order when:

Answer: The security's price reaches or passes the stop price

A stop order is triggered and becomes a market order when the security's price reaches the designated stop price.

Short selling requires investors to borrow securities because:

Answer: They are selling securities they do not currently own

Short sellers borrow securities to sell them first, expecting to buy them back cheaper later and return the borrowed shares.

What is the 'spread' in a securities quote?

Answer: The difference between the bid and ask prices

The spread is the difference between the ask price (what dealers sell at) and the bid price (what dealers buy at), representing the dealer's compensation.

An all-or-none (AON) order instructs the broker to:

Answer: Execute the entire order at once or not at all

An AON order must be filled in its entirety at the specified price; partial fills are not accepted.

What is payment for order flow (PFOF)?

Answer: Compensation paid to broker-dealers by market makers for routing customer orders to them

PFOF is a practice where market makers compensate broker-dealers for routing customer orders to them for execution.