Basics Beginner: Using Financial Services Wisely

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1.
A discount brokers commission is based on the total value of holdings in the customers account.
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False. Discount brokers earn commissions based on trades.
2.
If you place an order with your broker and it sits there for days waiting for a certain price limit to be activated, you have most likely placed a _______.
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Limit order. A limit order puts an upper or lower limit on the price, depending on whether you are buying or selling.
3.
Financial planners and advisors get paid in one of three possible ways. Which of the following is not one of those ways?
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None of the above. All of these are ways that planners and advisors get paid.
4.
If you are shorting a stock, and it increases greatly in price and keeps on increasing, what would be your reaction?
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You would panic. With shorting, you only make money if the stock price decreases. If it rises, you must eventually pay it back by buying it, and that means you will pay through the nose to buy it back.
5.
Full-service brokers typically _______.
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Provide a lot of personal attention and advice. Though full-service brokers certainly charge large commissions, they do provide personal attention and advice, and they deserve to get paid for it. An inherent problem with paying for advice via commissions is that the advisor gets paid more the more you trade, and trading frequently is typically not in your best interests.
6.
Say you are relaxing at home a week after having bought some stock on margin, and the price of the stock has dropped immensely during those days. Suddenly your phone rings, and it is your broker. You know instinctively that this is _______.
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A margin call. If the stock price drops deeply, your broker may worry that you wont be able to pay back the loan, and he or she will give you a margin call asking you to add more cash to your account.