Stocks Beginner: Using Financial Services Wisely

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1.
Shorting stock involves _______.
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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.
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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 _______.
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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.
4.
If you place an order with your broker to buy a stock provided that the price does not exceed $40 per share, you have placed a _______.
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Limit order. A limit order limits the price at which the trade is being executed.
5.
If you are paying your financial advisor 1.2% of your portfolio every year, your planners compensation is known as _______.
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A percentage of your assets. This payment method involves charging you a certain percentage of the assets under the advisors management.
6.
Full-service brokers who get paid by commission may have an interest in trading frequently for you. What are some possible downsides of this?
Choose wisely. There is only one correct answer.
Both of the above. Frequent trading, while it may have other values, can lead to commissions that chip away at your returns, and it can lead to more taxes on gains that you make.