You should also be familiar with the following terms used in trading securities:

  • Bid - for the purposes of the exam, the bid only refers to the price a market maker will pay for a security; it's the price an investor would receive if selling the security.

  • Ask - also called the offer, this is the price an investor would pay when buying the security.

  • Spread - the difference between the bid and the ask price; the spread provides compensation to the market maker.

  • Trade date - you should be aware of the difference between the trade date and the settlement date. The trade is the date on which a security trade actually takes place.

  • Settlement date - this is the date by which the securities trade must be completed. Note that government securities and options must settle by the day after the trade.

  • Cash transactions - this refers to securities that must settle on the trade date. It is rare for a trade to require a same-day settlement, but a test question might refer to this.

  • Regular way settlement - the completion of a securities transaction by the purchasing broker; while the current regular way settlement is three full business days after the trade date, this can be changed. Before computers were as efficient as they are today, regular way settlement was the trade date plus five days.

  • Record date - the date set by the issuer to determine the holders of record (i.e., thoseeligibleto receive a dividend payment). This date is necessary to know in order to determine the ex-dividend date.

  • Ex-dividend date - this is the date when the buyer of a stock will not be entitled to an upcoming dividend. It occurs two business days before the record date.


Look Out!
You will probably have to identify either the ex-dividend date or the record date on a test question. The question is likely to ask what day the investor should buy the stock to still receive the dividend.


  • Specialist -works at the NYSE and serves as an auctioneer for the stocks assigned to him/her. The specialist sets the opening price each day and must maintain a fair and orderly market in those stocks. The specialist may also buy and sell for his/her own account but may never compete with public orders.

  • Floor broker - these NYSE brokers handle only very large orders, such as 10,000 shares or more.

  • Market maker -works within the over-the-counter (OTC) market; they are the equivalent of specialists on the NYSE. Market makers are always prepared to buy or sell shares of assigned securities for their own accounts.

  • Day order - all orders are considered day orders unless marked otherwise.

  • Good-till-cancelled (GTC) - an order that remains in effect until it is executed or the investor decides to cancel it. If the order does not have an instruction, the order expires at the end of the day on which it was placed. GTC orders typically are cancelled by the broker-dealer after 30 to 90 days.

  • Short sale - refers to selling shares borrowed from the broker-dealer. If the price drops, the investor then buys the shares at a lower price and returns them to the broker-dealer.

If you are unfamiliar with short selling, you can find out more in the tutorial Short Selling.

Order Types

Related Articles
  1. Investing

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
  2. Trading

    The Basics of the Bid-Ask Spread

    Successful traders must be aware of the difference between the bid price and the asking price of a security.
  3. Investing

    What's a Maturity Date?

    Maturity date is the final date when any remaining principal and any unpaid interest are due on a debt.
  4. Investing

    Make Ex-Dividends Work For You

    Find out how to keep your dividends out of the tax man's hands.
  5. Trading

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  6. Investing

    Making The Trade: Understand Order Types

    Buying and selling stock can be a lot like buying or selling a car. Traders should use and understand tools such as market orders, limit orders, day orders, and good-'til-canceled orders to ensure ...
  7. Financial Advisor

    5 Ways to Date on a Budget

    Dating on a budget doesn't have to be boring. Try these 5 tips to find the best dates on a budget.
  8. Investing

    Target Date Funds: More Popular, Cheaper Than Ever

    How target date funds can help investors weather volatility when it comes to saving for retirement.
Frequently Asked Questions
  1. How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle ...
  2. How did moral hazard contribute to the 2008 financial crisis?

    Learn about moral hazard, how it can affect outcomes and how it contributed to the conditions that led to the 2008 financial ...
  3. Which mutual funds made money in 2008?

    Read about the only mutual fund that turned a profit in 2008. Learn about risk-averse investment strategies and the financial ...
  4. Were Collateralized Debt Obligations (CDO) Responsible for the 2008 Financial Crisis?

    Collateralized debt obligations are exotic financial instruments that can be difficult to understand, Learn the role they ...
Trading Center