ch.9 Flashcards
cash account
clients with regular cash accounts make full pmt for purchases on/before settlement date
normal settlement days
§ Gov of cda Treasury Bills: same day as the transaction
§ Gov of cda Bonds 5 yrs or less: 2 business days
§ Other securities: 3 business days after
margin accoutns
clients who wish to buy/sell securities on credit and initially pay only part of full price of transaction
Client pays only portion of the purchase price, dealer member lends balance to client
• Margin amount of funds investor must personally provide
Margin + loan provided by dealer member together make up total amt req to complete transactio
long position
actual ownership in security
○ Investor buys c/s to initiate position would have long position in stock
short position
investor sells security that they don’t own
○ Investor burrows shares from broker, sells shares in market to initiate position, has a short position
To close short position- must buy back stok from market and return stock to broker
2 types of margin positions
○ Long margin position: investor partially finances the purchase of securities, borrows money from the dealer
○ Short margin position: investor sells securities short, dealer borrows securities to cover short position
margin call
Margin is amount put up by client
If loan drops due to a fall in price of security, client must immediately provide additional funds in the account to cover shortfall
excess margin
If security price rises, loan rises, client has access to more funds in account
short selling
sale of securities that the seller doesn’t own, ○ Profits made whenever initial sale price exceeds subsequent purchase cost
○ Long position- investor purchases a security, holds it hoping to sell later at higher price ○ Short selling- investor sells security 1st, then waits hoping to buy it back later at lower price
dangers of selling short
• Difficulties in borrowing a sufficient quantity of security sold short to cover the short sale
Short seller responsible for maintaining adequate margin
• Short seller liable for any dividends or other benefits paid during period account short
Buy in requirements (obligation to buy back stock after selling short) effetive if adequate margin cannot be maintained AND/OR if originally borrowed stock called by owner and no other stock can be borrowed to replace it
Theoretical possibility of unlimited loss if stock price rises dramatically
Types of securities orders
- Money order
- Limit order
- Day order
- good till cancelled order (GTC)
- All or none order (AON)
- any part order
- Good through Order
- Stop loss order
- Stop buy order
- Professional (PRO) order
Market order
order to buy /sell specified number of securities at prevailing market price
All orders not bearing specific price considered market orders
Limit order
-order to buy/sell securities at specific price or better
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Day order
order to buy/sell that expires if not executed on day entered
Good till cancelled order (GTC)
order to buy/sell remains in effect till either executed or cancelled
