Stocks Beginner: Using Financial Services Wisely

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

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1.
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.
2.
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.
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.
Buying an investment on margin means _______.
Choose wisely. There is only one correct answer.
Borrowing money from another to purchase it. Buying on margin involves borrowing money, usually from a broker, to purchase an investment and then returning the money along with a commission.
5.
Sometimes, the more you trade, the lower your per-trade commissions.
Choose wisely. There is only one correct answer.
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.
6.
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.