Stocks Intermediate: Types of Stock Accounts

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1.
The cash account is the most common type of securities account.
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True. The most common type of investor securities account is the cash account.
2.
Option trading involves _______.
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More risk than traditional stocks and bonds. Because there is the potential for significant gains and losses, depending on the movement of the underlying stock, option trading involves significantly higher risk than traditional stocks and bonds.
3.
A wrap account is one in which all associated costs are wrapped into a single fee.
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True. A wrap account is a brokerage account in which all associated costs--broker commissions, money management fees, and transaction costs--are wrapped into a single fee.
4.
An arbitrage is the simultaneous purchase and sale of the same or equivalent security on two different markets.
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True. The objective is to take advantage of price discrepancies on the two markets.
5.
Because a margin account charges interest, there are no additional commission charges as in other stock accounts.
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False. Each time a margin investor executes a trade, the responsible broker is paid a commission, calculated as a percentage of the total transaction value.