Terminology

What this video covers

• How the bid-ask spread functions as an implicit transaction cost when crossed, and why narrow spread signals liquidity while wide spread signals thin trading
• The execution-versus-price tradeoff: what market orders guarantee (prompt execution, not price) and what limit orders guarantee (price or better, not execution)
• The critical distinction between stop orders (become market orders when triggered) and stop-limit orders (become limit orders when triggered), including exam traps on sell stop and buy stop placement
• The 50% initial margin requirement set by the Federal Reserve Board versus the 25% maintenance margin floor set by the Financial Industry Regulatory Authority (FINRA), and what triggers a margin call
• Why short sales require margin accounts, why unhedged short positions carry theoretically unlimited risk, and what locate requirements and circuit breakers exist
• How principal transactions generate markup or markdown while agency transactions generate commission, and why a firm can never charge both on the same trade
• What payment for order flow (PFOF) is, why it creates a conflict of interest, and why full disclosure to the client is mandatory