Hi.
In Brooks Case (Trading, Monitoring, and Rebalancing Topic Test) question #1, how would you know the buy execution price? Does it have to do with the ask/bid sizes or the movement of the ask/bid prices?
Thanks in advance!
Bid - the dealer buys / the client sells
Ask - the dealer sells / the client buys
When the client buys at execution price, you use $20.03 because trade has been executed (executed row) at ask (ask column) price. The “entry” row is the quoted bid/ask prices.
Correct. And maybe they can just say client gave a market order for immediate execution what means the ask price implied an execution price.
Hi kevinsfi and Flashback.
Thank you for your explanations. I’m still a bit confused though. The buyer placed a market order as the question said but we don’t know if the dealer (i.e., another trader) placed a market order or a limit order, right? I thought that in such a case we never know what the execution price would be. I’m sorry if I’ve missed anything obvious here. Any help would be highly appreciated.
u r probably confusing with dealer/broker.
In this case study, u are dealing with a dealer. The dealer is an adversary to the client. The dealer is the counterparty to the client’s trade - e.g. Forex counters. The dealer uses bid/ask spread as measure of profitability.
On the other hand, a broker is the one that handles different types of orders (e.g. market orders, limit orders, etc.) The broker is an agent of the client. The broker is no the counterparty but finds other third party counterparties to the client’s trade - e.g. stock exchanges
See more on Section 2.3, Reading 29.
Hi kevinsfl,
Thanks a lot for clarification. Now I understand the difference between quotes and execution prices and how they work much better. I appreciate your help!