Basics Beginner: Using Financial Services Wisely

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1.
Full-service brokers typically _______.
Choose wisely. There is only one correct answer.
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.
2.
Sometimes, the more you trade, the lower your per-trade commissions.
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True. Some brokers reward "active traders," as they are called, with lower per-trade commissions, provided that the traders meet a certain minimum number of trades per time period.
3.
If you are shorting a stock, and it increases greatly in price and keeps on increasing, what would be your reaction?
Choose wisely. There is only one correct answer.
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.
4.
If you place a market order to buy 100 shares of fictional company Wolverines Sailboats Corp., at what price and when would the trade be executed?
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The trade would be executed immediately at the best available price. A market order tells the broker to buy or sell at the best price available, and the trades are usually executed immediately, assuming the market is open.
5.
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 _______.
Choose wisely. There is only one correct answer.
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.
6.
All else being equal, which of the following planners would have the biggest conflict of interest regarding your money?
Choose wisely. There is only one correct answer.
A commission-based planner. Anyone who earns commissions has an interest in encouraging as many trades as possible. To what extent they act on that interest will, of course, vary.