Question

Assume you are looking to invest money in Apple Corporation.

a)Your broker has asked you whether you would like to place your order as a market order or a limit order. What does she mean by this and which would you rather do?
b)She has told you that her brokerage firm makes a market in Costco stock that you wish to purchase. What does she mean by this term and how might it be an advantage to you?
c)Tell me why you would or would not sell short this stock (of course in the process of your answer explain what selling short means). This assignment should be saved as a Word document when submitted to your drop-box in D2L. Please remember to cite your work even if it is just the text.

Answer 1

a) Market Order vs Limit Order: A market order is an order to buy or sell a stock at the current market price, while a limit order allows you to specify a specific price for the transaction. b) Making a Market in a Stock: When a brokerage firm makes a market in a stock, it means they are willing to buy and sell the stock at a specified price, providing liquidity and competitive pricing. c) Selling Short a Stock: Selling short refers to selling borrowed shares in the hopes of profiting from a decline in the stock's price.

Step-by-step explanation:

a) Market Order vs Limit Order:
A market order is a type of order that instructs the broker to immediately buy or sell the stock at the current market price. On the other hand, a limit order is an order that specifies the maximum price at which you are willing to buy or the minimum price at which you are willing to sell the stock. Choosing between market order and limit order depends on your investment strategy and risk tolerance. If you want to buy or sell the stock as quickly as possible, regardless of the price, a market order would be appropriate. However, if you want to set a specific price for the transaction and are willing to wait until the market reaches that price, a limit order would be more suitable.

b) Making a Market in a Stock:
When a brokerage firm makes a market in a stock, it means that they are willing to buy and sell the stock at a specified price. This can be an advantage to you as it ensures liquidity in the stock, meaning that you will be able to easily buy or sell the stock whenever you want. Additionally, a brokerage firm making a market in a stock can provide you with competitive pricing and execution for your trades.

c) Selling Short a Stock:
Selling short a stock refers to a strategy where an investor sells borrowed shares of a stock with the expectation that the price will go down. The investor then buys back the shares at a lower price and returns the borrowed shares to the lender, making a profit from the price difference. Whether or not you should sell short a stock depends on your assessment of the stock's potential decline, your risk tolerance, and your understanding of the market conditions and regulations surrounding short selling.