Broker-Dealers

1. In the days of floor trading on monopolistic exchanges with fixed commissions, why did exchange officials pay great attention to auditing brokerage firm error accounts?

Broker-dealers mainly are in charge for correcting errors or mistakes that exists in error accounts when executing trades for their customers. The result of error account will lead to immediate losses or gains. Especially in the monopolist market, buyers have no rights to negotiate with sellers because few sellers exist in this area, who dominate the price, supply chains, and other factors. If ever the error accounts occur in the floor trading on monopolistic exchanges with fixed commission, the buyers will have no opportunities to change the options as the trades are completed; therefore, it’s significant for exchange to pay great attention to auditing brokerage firm error accounts.

1. In the days of floor markets, why were entry-level employees who carried filled and unfilled orders around the trading floor called “runners,” even though the rules of the exchanged required them to walk and not run?

The floor markets exist many risks to get the trades done, as well as powers and rights to monitor and shape the market trends. For entry-level employees with filled and unfilled orders, they should be cautious about the upcoming opportunities and risks because they are new to the market, and have insufficient experiences. For those traders, sometimes they need to choose run to escape the risks of losing money instead of walking.

1. Why is it incorrect or confusing to say, “A trader who wants to buy immediately should place a marketable limit order to buy at the current best offer price in the market”?

Limited orders are usually for investors who want more controls over trades of the bid-ask spread. In this case, it would not earn profits if a trader wants to buy immediately with limited orders because there exists the risk inherent to the limited order, which is either the actual market price never fall and the investors may fail to execute the order or the there is no enough liquidity in the stock to fill the order when the target price has been reached. In the reality, a market order can satisfy the need for a trader who wants to buy immediately at the current best offer price in the market because a market order has the best available price, and traders should only consider using a market order when they aim to get trades done immediately.