Securities Markets: Common Misconceptions

False Statements about Securities Markets

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Question

Which of the following statements about securities markets is FALSE?

Answers

A. Characteristics of a well-functioning securities market include: many buyers and sellers willing to trade at below market price, low bid-ask spreads, timely information on price and volume of past transactions, and accurate information on supply and demand.

B. Secondary markets, such as the over-the-counter (OTC) market, provide liquidity and price continuity.

C. A limit buy order and a stop buy order are both placed below the current market price.

D. When Conglomerate, Inc. trades directly with MultiNational, Ltd., it is using the fourth market.

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Explanations

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A. B. C. D.

A limit buy is placed below the current market price, but a stop buy order is placed above the current market price (stop buy orders are often placed to protect a short sale from a rising market).

The other choices are true. A well-functioning securities market includes the following characteristics:

The fourth market is the direct exchange of securities (no intermediaries and no transaction costs).

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