Unit 1 Flashcards
What is a cash account?
An account in which the customer is required by the Fed’s Regulation T to pay, in full, for securities purchased no later than two days after the standard payment period set by the Uniform Practice Code.
What accounts can only be opened as cash accounts?
Personal retirement accounts (IRAs), corporate accounts (401ks), custodial accounts (UTMA, ESAs)
What is a margin account?
An account with a broker-dealer where the firm lends money to the client to purchase securities.
What is margin?
The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.
What is a fee-based account?
An account that is charged a single fee (either fixed or a percentage of assets in the account) instead of commission-based charges for brokerage services.
What is churning?
Excessive trading in a customer’s account with the view to generate comissions.
What is reverse churning?
The unsuitable practice of placing a client who trades in frequently in a fee-based account rather than a commission-based account that would be more appropriate
What is a wrap-fee account?
Account for which firms provide a group of advisory services in addition to brokerage services.
What is a prime brokerage account?
Account in which a customer - generally an institution - selects one member firm (the prime broker) to provide custody, trading, and other services, while other firms, called executing brokers, typically execute most of the trades placed by the customer.
What is a day trader?
Someone who buys and sells the same security on the same day to try to take advantage of intraday price movements.
What is a pattern day trader?
What is the minimum equity requirement to be one?
Someone who executes four or more day trades in a five-business-day period.
$25,000; they must have on deposit at least $25,000 in the account equity on any day in which day trading occurs.
What is sole proprietorship?
The simplest form of business organization and is treated like an individual account. All income (or loss) is that of the individual.
What is a general partnership?
An unincorporated association consisting of two or more individuals. The partners manage and are responsible for the operations and debts of the business.They allow the profits and losses of the business to flow directly through to the investors as passive income (or loss) for tax purposes, thus avoiding double taxation of profits at the business and individual levels.
What is a limited partnership?
The management (and liability) is assigned to the general partner(s), while the limited partner(s) are passive and have liability limited to their investment.
What is a Limited Liability Company (LLC)?
A business structure that combines benefits of incorporation (limited liability) with the tax advantages of a partnership (flow-through of taxable earnings or losses). The LLC owners are members (not shareholders) and are not personally liable for the debts of the LLC.
