Equity Securities and Equity Trading
Instruments and mechanics
Understand common and preferred shares, voting and economic rights, dividends, splits, and the difference between primary issuance and secondary trading. Know order types: market, limit, stop, stop-limit, iceberg, and time-in-force variants such as day, GTC and IOC. Be clear on short selling mechanics, locate requirements, and buy-in or fail-to-deliver consequences.
Trading conventions
Know the trade date versus settlement date distinction, ex-dividend dates and record dates, and how corporate actions adjust open orders and positions. Understand tick sizes, price collars and circuit breakers, and the role of market makers in providing continuous two-sided quotes.
Traps
- Confusing record date with ex-date: buying on or after the ex-date does not entitle the buyer to the dividend.
- Assuming a stop order becomes a limit order - a plain stop becomes a market order when triggered.
- Forgetting that limit orders may never execute and that this is not a breach of duty.
- Overlooking that short sales require a locate and that naked shorting is restricted.
- Mixing up voting rights of preferred versus common stock.
Rule of thumb
For any corporate action question, work backwards from the record date: entitlement follows the holder of record, and the ex-date is set by the settlement cycle, so the buyer must trade before the ex-date to be entitled. For order questions, ask what price certainty and what execution certainty the client has traded away.