Stocks Beginner: Using Financial Services Wisely

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Shorting stock involves _______.
Choose wisely. There is only one correct answer.
Borrowing shares of stock, selling them, and intending to buy them back at a lower price. With shorting, you can actually profit when a stock drops in price.
2.
A discount brokers commission is based on the total value of holdings in the customers account.
Choose wisely. There is only one correct answer.
False. Discount brokers earn commissions based on trades.
3.
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.
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?
Choose wisely. There is only one correct answer.
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.
What is the conflict of interest that you might encounter with a full-service broker who earns commissions?
Choose wisely. There is only one correct answer.
The broker may encourage frequent trading in order to get more commissions. While the other choices might still occur, only this one is a conflict of interest. Make sure your broker has your best interests at heart.
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.