Trading in WebExchange

Placing Limit Orders

A limit order is a request to buy or sell an asset at a specified price for a specified period of time. A limit order consists of:

• an instruction to buy or sell
• an asset ticker symbol
• the quantity you wish to trade
• a price at which you are willing to trade
• an expiration date and time after which the order will not be traded

Limit orders that are not immediately executed are placed in queues for possible later execution. An order’s priority in the queue is determined by its price and when it was placed. Ask orders with lower prices are executed before orders with higher prices. When there are ties among prices, earlier orders are executed before later orders. Similarly, bids with higher prices are executed before those with lower prices, with earlier orders taking precedence over later orders. Limit orders remain in their queue until they trade, expire, become infeasible, or are withdrawn by the trader that placed them.

To place a limit order, use the limit order menu (in the row labeled "1" in the picture above). Choose the asset you wish to buy or sell from the Action/Asset List ("1" in the picture above), specify the price ("2" in the picture above), the quantity ("3" in the picture above), and an expiration date and time ("4" in the picture above). Then click on the Limit Order button ("6" in the picture above) to submit the order.

By default, you will be asked to confirm your limit order before it is executed (a picture of the confirmation screen is shown below). If you wish to eliminate this confirmation step, remove the checkmark from the confirm box ("5" in the picture below) before clicking on the Limit Order button.

Limit Orders are executed against your account in one unit increments. Before each unit is traded against your account, your asset and cash holdings rechecked to be sure that you have enough assets and cash to continue the trade. When the remaining portion of a trade becomes infeasible, that portion is cancelled and marked infeasible.

If you enter a limit order with a price which crosses the opposite queue, trades will take place at the prices listed in the opposite queue. For instance, if you enter a bid to buy 10 units at a price of $.50 and the price in the ask queue is $.45, trades will first be executed at $.45 until that price is no longer available. Then trades will be executed at the next highest price in the ask queue until that price is no longer available, etc.

If trades occur as the result of limit orders you have placed, the word "Trades" will appear in hypertext in the upper-center of your screen. Click on this hypertext to see a list of trades that have taken place as a result of your limit orders in the market.

To see a list of outstanding bids or asks for a particular asset, click on the bid or ask hypertext on the right hand side of the price screen. To see a list of all orders that you have placed for a particular asset, use the My Account button at the bottom of the WebEx screen.

Withdrawing Orders

You can withdraw any of your bid and ask orders as long as they have not traded or expired.

To withdraw an order, first access the market in which the order was placed. The quotes screen will display each asset in the market; its right hand side will show whether you have any outstanding bids and asks. Click on the bid or ask hypertext to the right of the appropriate asset. Then find the order you wish to withdraw and click on the word delete to the right of the order. This will delete the order.

Once an order is deleted it cannot be retrieved.

Order Queues

Limit Orders are maintained in queues. Orders are listed in these queues in priority order. When a trade takes place, the order with the highest priority will be executed first, the next highest priority second, etc.

Bid orders with higher prices have higher priority than orders with lower prices. Within a particular price, older orders (orders that were placed sooner) have higher priority than newer orders.

Ask orders with lower prices have higher priority than orders with higher prices. Within a particular price, older orders (orders that were placed sooner) have higher priority than newer orders.

Only the highest priority bid and ask are shown on the trading screen. You cannot see other orders that other traders have placed in the queue. You can see orders that you have placed in the queue by clicking on the hypertext order quantity information on the right hand side of your trading screen (see the sample trading screen for examples). If the current best bid or ask is your order, an asterisk (*) will appear next it on your WebEx screen.

Short Sales and Margins

You cannot sell short or buy on margin. This means that you cannot hold negative inventories in assets or cash.

Trades are executed against your account in one unit increments. Before each unit is traded against your account, your asset and cash holdings rechecked to be sure that you have enough assets and cash to continue the trade. When the remaining portion of a trade becomes infeasible, that portion is cancelled and marked infeasible.

Feasibility Checks

Traders cannot not short sell assets or buy on margin. To enforce these restrictions, market orders are checked for feasibility before execution and limit orders are check for feasibility when they reach the top of their respective queues.

Market orders are executed one unit at a time. Each unit is checked for feasibility before it is executed. Infeasible portions of market orders are not traded.

Limit orders are checked for feasibility whenever they are at the top of their respective queues. So, all bids and asks that appear in the quote screens are feasible. This means that at least one contract can be traded at the stated bid or ask.

Bids and asks are checked for feasibility when:

• An order reaches the top of its queue
• An order is placed which would move to the top of its queue
• A trade takes place that could make an order at the top of its queue infeasible

Orders which reach the top of their queue and are found infeasible will be marked infeasible by the exchange and removed from the queue. A bid is infeasible if it reaches the top of the bid queue and the trader does not have enough cash to cover the purchase of at least one unit of the asset at the stated price. An ask is infeasible if it reaches the top of the bid queue and the traders does not have at least one unit of the asset in question.

Self Trades

You cannot trade with yourself. If you submit an order that would result in a self-trade, the exchange cancels the order in the opposing queue that would cause the self-trade and attempts to execute your order against other eligible orders in the queue.

Trades are executed against your account in one unit increments. Before each unit is traded against your account, it is checked to see whether it would result in a self trade. If it would, the order in the opposing queue is marked infeasible and cancelled by the exchange, and order processing continues against any other available orders in the queue.

Spinoffs and Splits

The IEM governors can declare asset spinoffs and splits. A spinoff replaces an asset with two new assets. A split replaces an asset with several shares of the same asset. When a spinoff or split takes place, each share of the existing asset is retired and replaced with the new assets.

Asset Liquidations by the Exchange

The liquidation formula describes how and when assets will payoff. Once assets are liquidated, they can no longer be traded.

Liquidation formulas are described in the market’s prospectus. There are three general ways in which liquidation values are determined: Winner-Takes-All, Vote-Share, and Linear-Returns.

In a Winner-Takes-All market, exactly one asset will have a positive payoff and all others will expire worthless. For instance, a 3-asset market in which DEM pays $1.00 if the Democrats win the most popular votes, REP pays $1.00 if the Republican win the most popular votes, and ROF pays $1.00 is neither of these two thing happen, is a Winner-Takes-All market.

In a Vote-Share market, liquidation values are determined by the candidates’ relative shares of the popular vote. In such markets, more than one asset can have a positive payoff. For instance, a 2-asset market in which DEM pays $1.00 times the Democratic share of the popular vote and REP pays $1.00 times the Republican share of the popular vote, is a Vote-Share market. If Democrats receive 50% of the popular votes, Republicans receive 40%, and a third party receives the remaining 10% of the vote, DEM will pay $.556 (5/9*$1.00) and REP will pay $.444 (4/9*$1.00).

In a Linear-Earnings market, liquidation values are determined by a linear function of reported annual earnings per share of a company. In such markets, more than one asset can have a positive payoff.