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Stocks Intermediate: Types of Stock Accounts

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1.
A short sale is executed when an investor thinks the value of the stock will _______.
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Drop. The investor sells the stock and then buys it back after it has fallen in price.
2.
In order for arbitrage to work, the security must be priced the same in the two separate markets.
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False. Arbitrage is done in an attempt to profit from temporary price differences in the security in the two separate markets.
3.
The investor information required to establish a cash account includes all of the following except _______.
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The investors occupation. In order to establish a cash account, the investor is responsible for providing basic personal information, including his or her name, address and phone number, a tax ID or Social Security number, and proof that he or she is of legal age.
4.
One of the primary advantages of wrap accounts is that they are less expensive than other account types.
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False. The primary advantage of the wrap account is that there is no incentive for the broker to churn the account. However, investors should be aware that wrap account fees can be as high as 3 percent.
5.
Option trading involves _______.
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More risk than traditional stocks and bonds. Because there is the potential for significant gains and losses, depending on the movement of the underlying stock, option trading involves significantly higher risk than traditional stocks and bonds.
Introduction to Types of Stock Accounts Brokerage Cash Accounts Brokerage Margin Accounts Brokerage Wrap Accounts Brokerage Option Accounts Brokerage Specialty Accounts Summary of Types of Stock Accounts Find out what you learned