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Question 1 of 10
1. Question
For which type of order the trade is immediately executed without regard to the price?
Correct
Market orders are placed when the investor wants to buy a security at the next available price. The trade is immediately executed without regard to the price.
Incorrect
Market orders are placed when the investor wants to buy a security at the next available price. The trade is immediately executed without regard to the price.
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Question 2 of 10
2. Question
What are the features of Short selling?
I. It is a strategy whereby the investor may speculate on the downward movement of the price of a security.
II. The investor borrows a security from the inventory of a broker-dealer and sells the security.
III. The investor must eventually replace the security borrowed and return it to the broker-dealer.
IV. The extra risk inherent in short selling comes with the upside of the price of the security.
Correct
Short selling is a strategy whereby the investor may speculate on the downward movement of the price of a security. To do this, the investor borrows a security from the inventory of a broker-dealer and sells the security. The investor must eventually replace the security borrowed and return it to the broker-dealer. If the value of the security decreases, the investor may buy it at the lower price and return it to the broker-dealer, while keeping the difference in what he or she received and what he or she paid. If the borrowed securities decrease in value to zero, the investor need not return it to the broker-dealer. The extra risk inherent in short selling comes with the upside of the price of the security.
Incorrect
Short selling is a strategy whereby the investor may speculate on the downward movement of the price of a security. To do this, the investor borrows a security from the inventory of a broker-dealer and sells the security. The investor must eventually replace the security borrowed and return it to the broker-dealer. If the value of the security decreases, the investor may buy it at the lower price and return it to the broker-dealer, while keeping the difference in what he or she received and what he or she paid. If the borrowed securities decrease in value to zero, the investor need not return it to the broker-dealer. The extra risk inherent in short selling comes with the upside of the price of the security.
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Question 3 of 10
3. Question
What does not stand true for Margin accounts?
Correct
Margin accounts are investment accounts by which investors may amplify the eventual results of their investing (good or bad). In a margin account, an investor may use the securities they currently hold as collateral for a loan from which they may buy more securities, or withdraw cash. The loans from margin accounts accrue interest, and the investor must have sufficient capital within the account to maintain the broker-dealer’s minimum capital requirement. If they don’t have enough capital, the broker-dealer may require a margin call of them or require that they sell assets to raise capital.
Incorrect
Margin accounts are investment accounts by which investors may amplify the eventual results of their investing (good or bad). In a margin account, an investor may use the securities they currently hold as collateral for a loan from which they may buy more securities, or withdraw cash. The loans from margin accounts accrue interest, and the investor must have sufficient capital within the account to maintain the broker-dealer’s minimum capital requirement. If they don’t have enough capital, the broker-dealer may require a margin call of them or require that they sell assets to raise capital.
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Question 4 of 10
4. Question
What is true about Broker-dealer acting as a principal or an agent?
I. Broker-dealers are firms that facilitate the flow of securities trading by acting in separate capacities.
II. If a client wishes to sell a security, the broker-dealer acts in an agency capacity on behalf of the client and provides a buyer for the client’s security.
III. If a client wishes to buy a security, the broker-dealer may choose to sell the security to the client from its own reserves of securities.
IV. The broker-dealer makes money by charging a fee to the client when it acts in an agency role.
Correct
Broker-dealers are firms that facilitate the flow of securities trading by acting in separate capacities. If a client wishes to sell a security, the broker-dealer acts in an agency capacity on behalf of the client and provides a buyer for the client’s security. In this regard, the firm is a broker, or agent, for the client. If a client wishes to buy a security, the broker-dealer may choose to sell the security to the client from its own reserves of securities. In this case, the broker-dealer is acting on its own behalf, for profit. In this role, the broker-dealer is a principal. The broker-dealer makes money by charging a fee to the client when it acts in an agency role, and by charging a markup on the securities it sells from its own inventory when it acts as a principal.
Incorrect
Broker-dealers are firms that facilitate the flow of securities trading by acting in separate capacities. If a client wishes to sell a security, the broker-dealer acts in an agency capacity on behalf of the client and provides a buyer for the client’s security. In this regard, the firm is a broker, or agent, for the client. If a client wishes to buy a security, the broker-dealer may choose to sell the security to the client from its own reserves of securities. In this case, the broker-dealer is acting on its own behalf, for profit. In this role, the broker-dealer is a principal. The broker-dealer makes money by charging a fee to the client when it acts in an agency role, and by charging a markup on the securities it sells from its own inventory when it acts as a principal.
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Question 5 of 10
5. Question
Which is not a disadvantage of High-frequency trading?
Correct
High-frequency trading (HFT) is a type of automatic trading which uses technology, computers in particular, to process high quantities of orders and transactions at extremely fast speeds. Such trading utilizes algorithms to compile and apply data from several different markets and to assess market conditions. Although HFT systems have been acknowledged to improve market liquidity, such systems have received criticism for removing the human element of practical judgment from stock trading and for crowding out smaller traders given the economic advantages such trading confers on the larger companies who can afford to implement HFT.
Incorrect
High-frequency trading (HFT) is a type of automatic trading which uses technology, computers in particular, to process high quantities of orders and transactions at extremely fast speeds. Such trading utilizes algorithms to compile and apply data from several different markets and to assess market conditions. Although HFT systems have been acknowledged to improve market liquidity, such systems have received criticism for removing the human element of practical judgment from stock trading and for crowding out smaller traders given the economic advantages such trading confers on the larger companies who can afford to implement HFT.
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Question 6 of 10
6. Question
What is the role of the dealers in trading securities?
I. Dealers act in a principal capacity on their own behalf buying and selling securities for their own account.
II. Dealers do not charge commissions on transactions.
III. Dealers charge a markup on the securities.
IV. Brokers facilitate trading between parties and charge commissions
Correct
Dealers act in a principal capacity on their own behalf buying and selling securities for their own account. When trading for their own account, they are said to be position trading. Dealers do not charge commissions on transactions, but instead charge a markup on the securities. The price of the security plus the markup is referred to as the net price. Broker-dealers act in both capacities, facilitating selling as brokers and facilitating buying from their inventories as dealers. Broker-dealers charge commissions on trades in which they act as agents, and markups on transactions in which they act as principals.
Incorrect
Dealers act in a principal capacity on their own behalf buying and selling securities for their own account. When trading for their own account, they are said to be position trading. Dealers do not charge commissions on transactions, but instead charge a markup on the securities. The price of the security plus the markup is referred to as the net price. Broker-dealers act in both capacities, facilitating selling as brokers and facilitating buying from their inventories as dealers. Broker-dealers charge commissions on trades in which they act as agents, and markups on transactions in which they act as principals.
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Question 7 of 10
7. Question
What is the role of specialists in trading securities?
I. To maintain orderly trading practices in the market and provide prices with stability.
II. The specialist fills market or limit orders from the investing public.
III. Specialists help facilitate trading when the security for which the specialist trades experiences trading anomalies.
IV. Specialists also attempt to prevent large price disparities that may occur when the trading day opens.
Correct
The role of the specialist is to maintain orderly trading practices in the market and provide prices with stability. To accomplish this, the specialist will fill market or limit orders from the investing public. Specialists will also trade from their own account to help provide market stability and help facilitate trading when the security for which the specialist trades experiences trading anomalies. Specialists’ main roles are to ensure fair and orderly market conduct for his or her specific security. Specialists also attempt to prevent large price disparities that may occur when the trading day opens.
Incorrect
The role of the specialist is to maintain orderly trading practices in the market and provide prices with stability. To accomplish this, the specialist will fill market or limit orders from the investing public. Specialists will also trade from their own account to help provide market stability and help facilitate trading when the security for which the specialist trades experiences trading anomalies. Specialists’ main roles are to ensure fair and orderly market conduct for his or her specific security. Specialists also attempt to prevent large price disparities that may occur when the trading day opens.
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Question 8 of 10
8. Question
Who are often responsible for movement in the price of securities?
Correct
Market makers are often responsible for movement in the price of securities. This is referred to as price dynamics. Market makers affect price dynamics by offering higher bid prices to solicit sellers, thus raising stock prices, and by lowering its ask price to solicit buyers, thus lowering stock prices.
Incorrect
Market makers are often responsible for movement in the price of securities. This is referred to as price dynamics. Market makers affect price dynamics by offering higher bid prices to solicit sellers, thus raising stock prices, and by lowering its ask price to solicit buyers, thus lowering stock prices.
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Question 9 of 10
9. Question
Which are the major stock exchanges that are located in the United States?
I. NYSE
II. CBOE
III. NASDAQ
IV. NYSE MKT LLC
Correct
The major stock exchanges that are located in the United States are the New York Stock Exchange (NYSE), the Chicago Board of Options Exchange (CBOE), the NASDAQ, and the NYSE MKT LLC (formerly the NYSE Amex). Stock exchanges are marketplaces that facilitate the trade of securities, commodities, derivatives, etc. The main purpose of stock exchanges is to provide fair and orderly conduct in the exchange of securities.
Incorrect
The major stock exchanges that are located in the United States are the New York Stock Exchange (NYSE), the Chicago Board of Options Exchange (CBOE), the NASDAQ, and the NYSE MKT LLC (formerly the NYSE Amex). Stock exchanges are marketplaces that facilitate the trade of securities, commodities, derivatives, etc. The main purpose of stock exchanges is to provide fair and orderly conduct in the exchange of securities.
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Question 10 of 10
10. Question
Which is not a feature of OTC markets?
Correct
Stocks that trade in some manner other than via a traditional stock exchange are said to be traded “over the counter.” These securities are usually traded over a dealer network rather than a centralized exchange such as the New York Stock Exchange. Because there is not necessarily a large market for OTC stocks, and no specialists or market makers as with large stock exchanges, OTC stocks can be very illiquid, and investors in such stocks should consider the liquidity risks of stocks purchased over the counter. The best known example of an OTC market is the NASDAQ. It is an electronic trading exchange that is not considered to be a formal exchange. Many companies listed on major exchanges pay to be listed on the NASDAQ for ease of trading. These companies’ stocks are not considered traditional OTC stock, but are traded OTC.
Incorrect
Stocks that trade in some manner other than via a traditional stock exchange are said to be traded “over the counter.” These securities are usually traded over a dealer network rather than a centralized exchange such as the New York Stock Exchange. Because there is not necessarily a large market for OTC stocks, and no specialists or market makers as with large stock exchanges, OTC stocks can be very illiquid, and investors in such stocks should consider the liquidity risks of stocks purchased over the counter. The best known example of an OTC market is the NASDAQ. It is an electronic trading exchange that is not considered to be a formal exchange. Many companies listed on major exchanges pay to be listed on the NASDAQ for ease of trading. These companies’ stocks are not considered traditional OTC stock, but are traded OTC.