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Welcome to Trader2b! Welcome to Trader2B! The Trader2B Trading Manual was designed to give novice and veteran traders a broad understanding of equities trading in North America, particularly in the mid/large cap and blue-chip stocks that exhibit high trading volume and liquidity. Furthermore, this manual will have a strong focus on the ToroChallenge™ designed by Trader2B, and guide the users and participants on how to develop their own strategies in trading the stock market that will help them succeed in trading and ultimately pass the challenge to become a funded proprietary trader. Do you have what it takes to be a prop trader? It requires both confidence and a willingness to accept mistakes. Ask yourself: “Do I always have to be right?” If so, you will have to give that up. “Can I accept my mistakes, learn from them and keep coming back for more?” If not, you will have to learn how. Prop trading involves high-risk speculation. It is speculative and risky and it will humble you; it will shake the confidence you have in your abilities. Prop trading may prove to be one of the hardest things you have ever undertaken. You need to understand that everyone goes through a learning curve and starting out with the attitude that you do not need training or that you know about trading already may mean you will not be around long enough to get through that learning curve. This curve is steep and it varies from person to person. There are typical reasons why people lose money and fail at prop trading and you should be aware of them. In the beginning, people lose money mostly because of keystroke errors; for example, they will use a buy key when they really wanted to use a sell key, or they will fail to cut their losses because they do not hit the right keys at the right time. Ultimately, people fail at prop trading because they lack discipline. The Trader2B Trading Manual will develop the knowledge, psychology, and strategies necessary to trade on electronic securities markets successfully and provide the opportunity for trainees to become part of our elite team of proprietary traders. Full support is provide to participants in many ways. You can call or email us any time and find additional information and educational materials on the T2B dashboard found on the website. From all Trader2B Team, we wish you a very successful trading career with us! www.trader2b.com 1 Table of Content Preface................................................................................................... 1 Chapter 1 ................................................................................................... 10 ToroChallenge™ and Live Evaluation.................................................. 10 1.1 What is the ToroChallenge™....................................................... 10 1.2 ToroChallenge™.......................................................................... 10 1.2.1. Toro 100.................................................................................. 11 1.2.2. Toro 50................................................................................. 11 1.2.3. Toro 25................................................................................ 11 1.3 ToroChallenge Rules................................................................... 12 1.4 Trading Symbol List.................................................................... 13 1.5 Live Evaluation............................................................................ 14 Chapter 2 ................................................................................................... 15 Market and Exchanges .......................................................................... 15 2.1 Exchanges ................................................................................... 15 2.2 Markets ....................................................................................... 15 2.3 Primary and Secondary Market .................................................. 15 2.4 The NASDAQ .............................................................................. 16 2.5 The NYSE .................................................................................... 16 2.6 The AMEX.................................................................................... 17 2.7 The CME ..................................................................................... 17 2.8 The LSE ...................................................................................... 18 Chapter 3 ................................................................................................... 19 Orders, Transactions and Positions ..................................................... 19 3.1 Orders ......................................................................................... 19 3.2 Transactions ............................................................................... 19 3.3 Limit Orders................................................................................. 20 Trader2B – All rights are reserved 2 3.4 Markets Orders ........................................................................... 20 3.5 Long Positions ............................................................................ 20 3.6 Short Positions............................................................................. 20 3.7 Inventory ..................................................................................... 21 3.8 Unrealized Profit/Loss................................................................. 21 3.9 Realized Profit/Loss..................................................................... 21 Chapter 4 ................................................................................................... 22 Auction Market – The Specialist .......................................................... 22 4.1 Auction Market ........................................................................... 22 4.2 Characteristics of Auction Markets............................................ 22 4.3 The Specialist Book.................................................................... 22 4.4 The Specialist Responsibilities................................................... 23 4.4.1. Specialist as Auctioneer....................................................... 23 4.4.2. Specialist as Agent .............................................................. 23 4.4.3. Specialist as Catalyst ........................................................... 23 4.4.4. Specialist as Principal ........................................................... 23 Chapter 5 .................................................................................................. 24 Dealer Market – Market Maker............................................................ 24 5.1 Dealer Market ............................................................................ 24 5.2 Market Makers ........................................................................... 24 5.3 Market Makers VS Prop Traders .............................................. 24 5.4 Market Makers Restrictions ....................................................... 25 5.5 Market Makers Responsibilities................................................. 25 5.6 Market Markers Sources of Income ......................................... 25 Chapter 6 ................................................................................................... 26 Electronic Communication Networks and Dark Pools ......................... 26 6.1 Electronic communication Networks.......................................... 26 6.2 ECNs Features and Characteristics ............................................ 26 6.3 Dark Pools ................................................................................... 27 www.trader2b.com 3 Chapter 7 ................................................................................................... 28 Basic Software tools and trading concepts ......................................... 28 7.1 Haywood Trader ........................................................................ 28 7.2 Level 2 – A Level Beyond.......................................................... 28 7.3 Time and Sales .......................................................................... 30 7.4 Tap Reading ............................................................................... 30 7.5 Trading Monitor and Position Summary..................................... 31 7.6 First in First out (FIFO) ............................................................. 33 7.7 Volume ....................................................................................... 33 7.8 Liquidity...................................................................................... 33 7.9 Rip, Tank, and Swipe ................................................................. 34 7.10 Volatility ..................................................................................... 34 7.11 Gateways ..................................................................................... 35 7.12 Execution System........................................................................ 35 7.13 Books .......................................................................................... 35 7.14 Retail Traders and Prop Traders ............................................... 35 7.15 Arbitrage .................................................................................... 36 7.16 Lots, Round Lots, Odd Lots ....................................................... 36 7.17 Cross Lock.................................................................................
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