unit 9 | equity securities: equity trading

Question 1

Cash Account

Answer 1

• Most basic type of investment account
• Buy and sell stock with your cash
• Not granted credit (they are not lent money) to purchase securities
• Must make full payment before settlement date

Question 2

Margin Account

Answer 2

• The investment dealer/brokerage firm lends clients money to buy securities
• Client must contribute part of the full price; remainder is borrowed
• Interest is charged on the borrowed amount

Question 3

Define Long Position

Answer 3

You own the security
“I am long RBC” → you own RBC shares

Question 4

Short Position

Answer 4

Created when you sell the securities

Question 5

Cash & Margin Accounts

Answer 5

When the margin (difference between market value & borrowed funds) falls below certain level:
- Client receives “margin call”
- Firm that has lent money requires more money from client
- If no funds are paid; securities are sold
- If securities increase in value → margin is created & can be used by client (to borrow more funds)

Question 6

Short Sales

Answer 6

• Occur when an investor sells securities that they do not own
• They borrow the securities from an investor who owns them
• The investor who shorts the securities must buy them back in the future to settle the trade
• The investor receives proceeds when they short the security & must deposit a % of the market value of the securities

Question 7

Market order

Answer 7

Executed at the best available price

Question 8

Limit order [used often]

Answer 8

Executed only if a specific price can be obtained

Current price = $58; place a limit buy order at $55 → stock will only be bought if price declines to $55

Question 9

Day order

Answer 9

Only valid for the current day (cancelled if not executed by the end of the day)

Question 10

Open or Good Till Cancelled (GTC) order

Answer 10

Limit orders that remain open until executed or specific date

Question 11

All or None (AON) order

Answer 11

Executed only if total # of shares can be bought or sold; alternatively, a min # of shares can be specified

Question 12

Any part order

Answer 12

Opposite of AON order → accept any # of shares up to the total $ of shares in the order

Question 13

Good through order

Answer 13

Remain valid for a specified period of time after which they are cancelled

Question 14

Stop-loss order [used often]

Answer 14

Market order to sell if price drops below a certain price

Question 15

Stop-buy order [used often]

Answer 15

Opposite of a stop-loss order → market buy order if price rises above a certain price

Question 16

Professional (Pro) order

Answer 16

Order involving directors, management, shareholders or specified employees of investment dealer/brokerage