The Mechanics of Investing in Securities - Business Finance - ثاني ثانوي

4.2 The Mechanics of Investing in Securities Key Terms Market order Limit order Good till canceled order Good-till-date-order Day order Suppose an authorized investor wants to buy a stock of Saudi Aramco or Saudi Basic Industries Corporation. Companies listed on an exchange have a ticker symbol or trading name. In the Saudi Exchange, Saudi Aramco's trading name is SAUDI ARAMCO and Saudi Basic Industries Corporation's ticker symbol is SABIC. Both companies trade through the Saudi Exchange (TADAWUL), which advises potential investors to work with a member of the exchange, typically a broker, to open an investment portfolio. Authorized investors Include Saudi Arabian citizens, companies, charitable institutions and associations, endowments, investment companies, public institutions, government funds, and other authorized persons to purchase stocks through the exchange. 4.2a Brokerage Mechanics As shown previously in Figure 4.2, a buyer places a purchase order with a broker whose role is to buy and sell securities for customers through the exchange. The broker and the market maker (the securities dealer) should not be confused since they perform different but crucial roles in the mechanics of purchasing and selling securities. Brokers execute orders for customers. Securities dealers make a market; they buy and sell securities for their own accounts. Dealers bear the risk associated with their purchases and sales. Because brokers buy and sell for their customers' accounts, they do not bear the risk associated with fluctuations in securities prices. These risks are borne by the investors. Most brokers allow their retail, or personal account, clients to buy and sell online through a brokerage portal. وزارة التعليم Link to digital lesson www.den.edu. CHAPTER 4 An Introduction to Financial Markets 153

Pl Marketler Instructions to buy or sell a security at the best current price Limit order A direction given to a broker to buy or sell a security at a specific price Day onlar Order to buy or sell at a specified price that is canceled at the end of the day if it is not executeo Order to buy or sell at a specified price limit orice) that remains in effect until it is executed by the broker.or canceled by the investor Order Types: 1. A market order: instructions to buy or sell a security at the best current price. A buyer can ask the broker to buy the security at the best price currently available, which is the asking price set by the market maker. Such a request is a market order. The investor is not assured of receiving the security at the currently quoted price, since that price may change by the time the order is executed. However, the order is generally executed at or very near the asking price. 2. A limit order: a direction given to a broker to buy or sell a security at a specific price. A buyer may enter a limit order and specify a price below the current asking price and wait until the price declines to the specified level. Orders Validity: The timing menu allows the order to be placed for one day (a day order) or the order may remain in effect indefinitely (a good-till-canceled order). Such an order remains in effect until it is either executed or canceled. Once the purchase or sale has been made, the broker sends a confirmation statement notice of the exchange settlement. This confirmation gives the number of shares and type of security purchased or sold, the per unit price, and the total amount of the purchase or sale including the transaction fees, if any. Figure 4.3 illustrates the buying and selling menus used by online brokerages. 154Business Finance

Symbul Shtegy Saudi A Action Quantity Estate Aunt Order Typ Unive Sty Vymbal Strategy Shall Alamy 39.70 SAN Action Quantity Order Type Timing Extant SAR FIGURE 4.3 Online Brokerage Order 4.2b Trading on the Saudi Exchange The Saudi Exchange (TADAWUL) has set specific rules for buying and selling securities through the exchange. Investors need to open an investment account with a broker authorized to carry out the securities business on exchange. The investor needs to fill out the required application to buy or sell a specific stock. This could be through a form issued by the broker, online, or through a telephone authorization. The most common orders available in the Saudi Exchange are "market orders" and "limit orders". The investor also can specify the duration of the validity of the order. The duration could be a "day order" or a "good-till-date-order" Good Hill-date order An order to buy or sell that is active unul a specific date وزارة التعليم " - CHAPTER 4 An Introduction to Financial Markets 155

156Business Finance Exercises Choose the correct answer. 1. A broker and a market maker (the securities dealer) perform the same roles in the mechanics of purchasing and selling securities. True/False 2. The major transaction fee for a brokerage firm is the a. commission b. spread c. ask d. return 3. An order placed to be filled in one day is called a day order. True/False 4. An investor placing a market order is assured of receiving the security at the currently quoted price. True/False