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50 Cards in this Set
- Front
- Back
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An order ticket to sell may be marked "long" in all of the following circumstances EXCEPT the customer:
StatusA A. is long a call on that stock that has been exercised StatusB B. is short a put on that stock that has been exercised StatusC C. holds fully-paid convertible preferred stock of that issuer and has given instructions to convert StatusD D. holds fully paid warrants to buy the underlying stock in custody of the broker-dealer |
The best answer is D. A customer is "long" if the customer owns an option, right or warrant on that stock and has exercised (so we know that the stock is actually coming in). Similarly, if a customer is short a put and it has been exercised, we know that the customer will be receiving the stock - so the customer is "long." A customer is "long" if the customer owns a convertible security (into that stock) and has given irrevocable instructions to convert. If a customer simply owns a right, call, or warrant; is short a put; or owns a convertible; this is not considered to be "long" the underlying stock until the action is taken to turn that instrument into that stock.
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rading Markets: Trading Market Basics: Order Ticket: Long Sale
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order ticket to sell is marked "long" if the customer is delivering the securities on settlement
If a customer is long a call or short a put, and the option is exercised, then the customer will be receiving the stock and can deliver by settlement. This is a long sale. If a customer owns rights or warrants on a stock and has exercised, then the customer will be receiving the stock and can deliver by settlement. This is a long sale. If a customer is long a convertible bond and has given irrevocable instructions to convert, then the customer will be receiving the stock and can deliver by settlement. This is a long sale. Note, in contrast, that a short sale occurs when a customer must borrow the shares for delivery on settlement. |
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Which of the following customers is considered to be long 100 shares of ABC stock?
I A customer who has bought 100 ABC shares in a regular way trade that has not yet settled II A customer who owns 1 ABC call contract III A customer who owns two ABC convertible bonds, convertible into 50 shares each, who has given irrevocable instructions to convert IV A customer who owns 100 ABC warrants and has exercised those warrants StatusA A. I and III only StatusB B. II and IV only StatusC C. I, III, IV StatusD D. I, II, III, IV |
The best answer is C. A customer is considered to be long stock once the stock has been purchased. The transaction does not have to settle for the customer to be considered to be long. A customer is considered to be long if he owns options or warrants and has exercised. Choice II is not considered a long stock position since the call has not been exercised, while Choice IV is a long position because the warrants have been exercised. A customer is considered to be long stock if the customer owns a convertible security and gives irrevocable instructions to convert (Choice III).
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A new customer calls a representative and says the following: "I own 1,000 shares of DEF stock, which is currently held at another broker-dealer. I want to sell the shares at the market." The representative accepts the order from the customer. The order ticket should be marked:
StatusA A. long sale StatusB B. long sale - exempt StatusC C. short sale StatusD D. short sale - exempt |
The best answer is C. When a customer sells, the order ticket must be marked either "long" or "short." A sale is marked long if it is reasonably expected that the customer will deliver the shares on settlement. A sale is marked "short" if the shares must be borrowed to settle the sale. Because the shares are sitting at another broker-dealer, they cannot be delivered to this firm by settlement (the account transfer process takes at least 4 business days and typically takes longer). Thus, the order ticket must be marked "short." Also note that there is no such thing as "long-exempt" and the "short-exempt" order ticket marking is only used for short sales of stocks that have dropped by 10% or more in value, where the sale must be done on an up-bid under Regulation SHO.
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Trading Markets: Trading Market Basics: Order Ticket: Short Sale
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A "Long Sale" is the sale of stock that is owned, where those shares will be delivered on settlement date.
A "Short Sale" is the sale of stock that is not owned, where borrowed shares will be delivered on settlement date.. Short sales of equity securities are subject to Regulation SHO. |
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A customer places an order to sell 100 shares of ABC stock that he cannot deliver by settlement date. The order ticket should be marked:
StatusA A. Sell - MKT StatusB B. Sell - GTC StatusC C. Sell - Long Correct D. Sell - Short |
The best answer is D. A long sale is the sale of shares which the customer owns and will deliver on settlement date. A short sale is the sale of shares which the customer does not own. Therefore, in order to effect delivery on settlement date, the short seller must borrow the shares. In essence, a short seller is selling borrowed shares.
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rading Markets: Trading Market Basics: Order Ticket: Cancel / Rebills
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If an order is executed and the account information must be changed due to an error, then a written Cancel and Rebill record must be created
Example: the order ticket placed the trade in the customer’s cash account, but the trade was supposed to be performed in the customer’s margin account. A written Cancel/Rebill record must be created canceling the order form the customer’s cash account and rebilling it to the customer’s margin account The Cancel/Rebill record must detail the reasons for the change and must be approved, in writing, by a manager or compliance officer. |
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Cancel / Rebill record
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a requirement of FINRA/NYSE, a written record detailing any change of account designation to a customer order or position
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A customer places an order to buy 1,000 shares of ABC stock at the market in his cash account. The order is executed and, when reporting the trade back to the customer, the registered representative notices that the trade was executed in the customer’s margin account. Which statement is TRUE? The registered representative can move the trade to the customer’s cash account:
StatusA A. to correct the error without needing to take any additional action since these accounts are related to each other StatusB B. as long as a signed statement requesting the transfer is obtained from the customer Correct C. as long as a cancel/rebill record is created that documents the reasons for the account designation change and the manager approves in writing StatusD D. as long as FINRA is sent a quarterly report detailing all account designation changes whenever transactions were placed in incorrect customer accounts |
The best answer is C. FINRA requires that anytime there is a change of account name or designation relating to an executed order, a written record must be made of the change. This is called a "Cancel-Rebill" record. A branch manager or compliance officer must know the reasons for the change and must approve the change in writing. Such a record must be created for any change of account designation - even for something as minor as moving a trade from a customer’s cash account to the same customer’s margin account.
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Trading Markets: Trading Market Basics: Order Types: Buy Limit Order
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A buy limit order specifies a maximum price which the customer will pay to buy.
Buy limit orders are placed at a price that is lower than the current market. Buy limit orders are filled in falling markets. Buy limit orders must be filled at the limit price or lower. If the market never falls to the limit price, the order remains unexecuted. |
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GTC
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a time notation that can be placed on orders that are "away from the market" meaning "good-til-canceled". Subject to periodic renewal, the order remains in the market until it is executed or expires. (see Good til canceled, Open order; compare Day order)
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A customer places an order to buy bonds. The order reads "Buy 5M ABC 9s M '32 @ 90 GTC." The customer has entered a: A. stop order to buy at 90
Correct B. limit order to buy at 90 StatusC C. market order to buy StatusD D. stop limit order to buy |
he best answer is B. Since a price is specified with no other qualifications, this is a limit order to buy $5,000 face amount ("5M") of 9% bonds maturing in 2032. The customer wants to pay 90% of par for the bonds or less. Open buy limit orders are executed if the market drops.
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Trading Markets: Trading Market Basics: Order Types: Buy Limit - Placement Relative to Market
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Buy limit orders are placed at a price that is lower than the current market.
Buy limit orders are filled in falling markets. Buy limit orders must be filled at the limit price or lower. |
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Limit order
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an order to buy a security (buy limit) at a specified price or lower, or to sell a security (sell limit) at a specified price or higher. A buy limit order is placed below the current market price of the security, and is executed if the market falls to, or through, that price. A sell limit order is placed above the current market price of the security, and is executed if the market rises
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Buy limit orders are:
I placed below the current market value II placed above the current market value III executed if the market falls IV executed if the market rises |
The best answer is A. Buy limit orders are placed below the current market value and are executed if the market falls to that price or lower.
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Prior to the opening of the options exchange, an investor wishes to place an order to sell an option contract at a premium that is higher than the previous day's close. The order type to be placed is a(n):
StatusA A. At the open order StatusB B. Limit order StatusC C. Stop order StatusD D. Not Held order : |
The best answer is B. The orders that are placed higher than the current market are "OSLOBS" - Open Sell Limits and Open Buy Stops. Thus, to sell at a price higher than the current market, an open sell limit order would be placed.
Conversely, the orders that are placed lower than the current market are "OBLOSS" - Open Buy Limit orders and Open Sell Stop orders. Thus, to sell an option at a premium that is lower than the closing price, an open sell stop order would be placed. |
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Trading Markets: Trading Market Basics: Order Types: Sell Limit Order
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Trading Markets: Trading Market Basics: Order Types: Sell Limit Order
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Trading Markets: Trading Market Basics: Order Types: Sell Limit - Placement Relative to Market
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Sell limit orders are placed at a price that is higher than the current market.
Sell limit orders are filled in rising markets. Sell limit orders must be filled at the limit price or higher. |
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Sell limit orders:
I used to sell securities at prices that are lower than the current market price II used to sell securities at prices that are higher than the current market III guarantee a specific execution price or better IV do not guarantee a specific execution price or better Incorrect Answer A. I and III StatusB B. I and IV Correct Answer C. II and III StatusD D. II and IV |
The best answer is C. Sell limit orders are used to sell securities at prices that are higher than the current market. They may only be filled at the limit price or higher - so they do guarantee a specific execution price or better
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Sell limit orders are
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placed below the current market value
II placed above the current market value III executed if the market falls IV executed if the market rises StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV |
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placed below the current market value
II placed above the current market value III executed if the market falls IV executed if the market rises StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV |
The best answer is D. Sell limit orders are placed above the current market value and are executed if the market rises.
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Which of the following statements are TRUE regarding stop orders?
I Stop orders are placed "away" from the current market II Stop orders allow a specific execution price to be "locked in" III Stop orders can limit loss on a long stock position IV Stop orders can protect a profit on a long stock position StatusA A. I and II only StatusB B. III and IV only StatusC C. I, III, IV StatusD D. I, II, III, IV |
he best answer is C. Stop orders are placed "away" from the current market - sell stop orders are placed below the current market price while buy stop orders are placed above the current market price. Stop orders do NOT allow a specific execution price. Once the "stop" price is reached, the order is elected and becomes a market order to be filled at the next price - which could be higher, lower, or the same as the stop price. They can be used to limit a loss on a long stock position (place a sell stop order for execution if the market falls to a certain price). Stop orders can be used to protect a profit on a long stock position (place a sell stop order just below the current market price of the stock).
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Trading Markets: Trading Market Basics: Order Types: Stop Order Basics
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which the market must move; if the market moves to, or through this price, the order turns into a market orde
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Stop order
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also called a stop-loss order, an order that becomes a market order to buy (buy stop) or a market order to sell (sell stop) when the security trades at a specified price, known as the stop price. Once the market goes to, or through, the stop price, the order is said to be "elected", and turns into a market order - thus the actual execution price is not known. Once elected, the order is filled "at the market". A buy stop order is placed above a stock's current market price and is executed if the market rises to, or through, that price. A sell stop order is placed below a stock's current market price and is executed if the market falls to, or through, that price. (compare Limit order, Stop-limit order)
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All of the following statements are true regarding stop orders EXCEPT:
StatusA A. stop orders can protect a profit on a long stock position StatusB B. stop orders can limit a loss on a long stock position Correct C. stop orders allow a specific execution price to be "locked-in" StatusD D. stop orders are placed "away" from the current market |
The best answer is C. Stop orders do not allow a specific execution price. Once the "stop" price is reached, the order is elected and becomes a market order to be filled at the next price - which could be higher, lower, or the same as the stop price. Stop orders can be used to protect a profit on a long stock position (place a sell stop order just below the current market price of the stock). They can be used to limit a loss on a long stock position (place a sell stop order for execution if the market falls to a certain price). Stop orders are placed "away" from the current market - sell stop orders are placed below the current market price while buy stop orders are placed above the current market price.
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Trading Markets: Trading Market Basics: Order Types: Sell Stop Order
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A sell stop order is used to stop a loss on a long stock position; or to protect a profit on a long stock position.
Sell stop orders are placed at a price that is lower than the current market. If the market falls to, or through, the stop price, the order is "elected" (or "triggered") and becomes a market order to sell. Once elected, the order will be executed immediately "at the market'" - so the actual execution price in unknown. |
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To limit loss on a long stock position, the appropriate order to place is a:
StatusA A. buy stop order StatusB B. sell stop order StatusC C. buy limit order StatusD D. sell limit order |
The best answer is B. To limit loss on a long stock position, the investor wants to sell if the market drops. To sell in a falling market, the appropriate order is a sell stop order. A sell limit order is used to sell in a rising market, and thus is not appropriate.
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Trading Markets: Trading Market Basics: Order Types: Sell Stop - Placement Relative to Marke
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ell stop orders are placed at a price that is lower than the current market.
If the market falls to, or through, the stop price, the order is "elected" (or "triggered") and becomes a market order to sell. Once elected, the order will be executed immediately "at the market" - so the actual execution price in unknown. |
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Which statements are TRUE regarding sell stop orders?
I Sell stop orders will be elected at the stop price or lower II Sell stop orders will be elected at the stop price or higher III Once elected, sell stop orders will be executed at the stop price specified only IV Once elected, sell stop orders may be executed at, above, or below the stop price specified StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV |
The best answer is B. Stop orders are placed "away" from the current market - sell stop orders are placed below the current market price (and elected at or below the stop price) while buy stop orders are placed above the current market price (and elected at or above the stop price). Once the "stop" price is reached, the order is elected and becomes a market order to be filled at the next price - which could be higher, lower, or the same as the stop price.
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Trading Markets: Trading Market Basics: Order Types: Buy Stop Order
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A buy stop order is used to stop a loss on a short stock position; or to protect a profit on a short stock position.
Buy stop orders are placed at a price that is higher than the current market. If the market rises to, or through, the stop price, the order is "elected" (or "triggered") and becomes a market order to buy. Once elected, the order will be executed "at the market price" as soon as possible based on its location in the queue of market orders - so the actual execution price in unknown. |
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customer places an order to "Buy 100 ABC @ 90 Stop." The customer wishes to buy the stock at:
StatusA A. $90 per share StatusB B. the market price, if the market falls to $90 per share or lower StatusC C. the market price, if the market rises to $90 per share or higher StatusD D. a price that is no higher than $90 per share |
The best answer is C. This order is a Buy Stop order, which is placed above the current market value. If the market price rises to $90, the order is elected and becomes a market order to buy. Once elected, the order is executed at the next available price as a market order. The order is executed, but the specific execution price is unknown.
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Buy stop orders:
I are used to buy securities at prices that are lower than the current market II are used to buy securities at prices that are higher than the current market III guarantee a specific execution price or better IV do not guarantee a specific execution price or better StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV |
The best answer is D. Buy stop orders are used to buy securities at prices that are higher than the current market - they are used to "stop" a loss on a short stock position. If the market rises to the stop price, the order is "elected" and becomes a market order to buy. They buy order will be filled at the prevailing market price - so there is no guarantee of a specific execution price or better.
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A customer enters an order to sell 100 shares of ABC at 40 stop limit when the market price of ABC is 40.88. The first trade where the order can be executed is:
A. 39.88 StatusB B. 40.00 StatusC C. 40.13 StatusD D. 40.25 |
The best answer is D. This sell order was placed at 40 Stop Limit. This type of order is placed at a lower price than the current market, and is elected if the market price drops to 40 or lower. Once it is activated, it becomes an order to sell at the limit price of 40 or higher. The next trade after 39.88 (which elected the order) is at 40.25. This meets the limit price to sell at 40 or higher, so execution can take place at this price.
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A customer places the following instructions with his registered representative:
"Buy 100 shares of ABC if the market rises to $45, but don't buy the stock for more than $50." What is the appropriate order to be placed? StatusA A. Buy ABC @ 45 Stop 50 Limit StatusB B. Buy ABC @ 50 Stop 45 Limit StatusC C. Buy ABC @ 45 Stop StatusD D. Buy ABC @ 50 Stop |
The best answer is A. This customer wishes to buy the stock if the market rises to $45 per share. The only order that allows the purchase of stock at a price above the current market is a buy stop order. A buy limit order cannot be used because this type of order is placed below the current market.
Therefore, the order must be: Buy 100 ABC @ $45 Stop. However, there is a problem. If the market moves to $45 or higher, the order is elected and becomes a market order to buy. The execution could occur at any price, and this customer doesn't wish to pay more than $50 per share. Therefore, the order must be: Buy 100 ABC @ 45 Stop; 50 Limit. If the market rises to $45, the order is elected, and becomes an order to buy at the limit price of $50 (or lower). Thus, it will only be filled at $50 or less per share. |
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Trading Markets: Trading Market Basics: Order Types: Sell Stop Limit Order
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A sell stop limit order is used to stop a loss on a long stock position; or to protect a profit on a long stock position.
Sell stop limit orders are placed at a price that is lower than the current market. If the market falls to, or through, the stop price, the order is "elected" (or "triggered") and becomes a limit order to sell. Once elected, the order will be executed only at the limit price or higher - so if the market keeps falling, the order may never be filled. |
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Trading Markets: Trading Market Basics: Order Types: Buy Stop Limit Order
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A buy stop limit order is used to stop a loss on a short stock position; or to protect a profit on a short stock position.
Buy stop limit orders are placed at a price that is higher than the current market. If the market rises to, or through, the stop price, the order is "elected" (or "triggered") and becomes a limit order to buy. Once elected, the order will be executed only at the limit price or lower - so if the market keeps rising, the order may never be filled. |
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rders that are placed lower than the current market are:
I buy limits II buy stops III sell limits IV sell stops |
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Trading Markets: Trading Market Basics: Order Types: OBLOSS
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The orders that are placed lower than the current market; and which are filled in falling markets are:
obloss |
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Orders that are placed higher than the current market are:
I buy limit II buy stop III sell limit IV sell stop |
The best answer is C. The orders that are placed higher than the current market are "OSLOBS" - Open Sell Limits and Open Buy Stops. Sell limit orders allow the sale of a security at a price that is higher than the current market; buy stop orders allow the purchase of a security at a price that is higher than the current market. Both of these orders are filled in rising markets.
Conversely, the orders that are placed lower than the current market are "OBLOSS" - Open Buy Limit orders and Open Sell Stop orders. Buy limit orders allow the purchase of a security at a price that is cheaper than the current market; sell stop orders allow the sale of a security at a price that is cheaper than the current market. Both of these orders are filled in falling markets. |
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Trading Markets: Trading Market Basics: Order Types: OSLOBS
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e orders that are placed higher than the current market; and which are filled in rising markets are:
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Resistance level
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a price level to which a stock or the market rises (and then falls from) repeatedly. Selling increases as a stock's price approaches this level, so the stock has resistance to further upward price moves, hence the name. If a stock's price breaks the resistance level, then it is believed by technical analysts that there are still buyers, without the same level of sellers, so there will be a strong upward price movement in the stock due to the excess of buyers in the market.
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A technical analyst has identified a resistance level for ABC stock at $50 and a support level at $40. The stock is currently trading at 45 and the analyst expects the stock to break the support level. Which order is appropriate to profit if the support level is broken
Sell 100 ABC @ Market StatusB B. Sell (short) 100 ABC @ $39 StatusC C. Sell (short) 100 ABC @ $39 Stop StatusD D. Sell (short) 100 ABC @ $41 Stop |
The best answer is C. A stock breaks a "support" level as the market falls. If the stock breaks this level ($40), the investor feels that the price will plummet. To profit, he wants to sell short if the market breaks $40 on the downside, so the order is to sell (short) @ $39 Stop. The order must be a sell stop because it is placed lower than the current market. If the market falls to $39, the order is triggered and becomes a market order to sell short. The order can then be executed on the next trade. Once the short stock position is established, the customer believes that the price will plummet, and that the stock can be purchased later to cover the short sale at a much lower price for a profit.
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Trading Markets: Trading Market Basics: Support Level
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Trading Markets: Trading Market Basics: Support Level
A technical analyst charts the price movements of a stock If the "chartist" finds that the stock falls to a certain price level, and then recovers as buyers "bargain hunt", falls again and then recovers, falls again and then recovers, etc., then this is the stock's "support level." If a stock breaks the "support level," this is extremely bearish since there are sellers without buyers. A downside breakout through a support level indicates that the stock's price will drop sharply. To profit from a break through a "support level" a sell (short) stop order should be placed just below the "support level." |
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A technical analyst has identified a resistance level for ABC stock at $50 and a support level at $40. The stock is currently trading at $45 and the analyst expects a breakout on the upside. What order is appropriate to profit from this movement?
StatusA A. Buy 100 ABC @ Market Incorrect Answer B. Buy 100 ABC @ $49 Stop Correct Answer C. Buy 100 ABC @ $51 Stop StatusD D. Buy 100 ABC @ $51 |
The best answer is C. A stock breaks a "resistance" level as the market rises. If the stock breaks this level ($50), the investor feels that the price will rocket upwards. To profit, he wants to buy if the market breaks $50 on the upside, so the order is to buy @ 51 Stop. The order must be a buy stop because it is placed above the current market. If the market rises to $51, the order is triggered and becomes a market order to buy. The order can then be executed on the next trade. Once the long stock position is established, the customer believes the price will skyrocket, so that it can be sold at a higher price for a profit.
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A technical analyst has identified a resistance level for ABC stock at $81 and a support level at $75. The stock is currently trading at $77 and the analyst expects the stock to break the resistance level. Which order is appropriate to profit if the resistance level is broken?
StatusA A. Buy 100 ABC @ $82 Stop StatusB B. Buy 100 ABC @ $80 StatusC C. Buy 100 ABC @ Market StatusD D. Buy 100 ABC @ $80 Stop |
The best answer is A. A stock breaks a "resistance" level as the market rises. If the stock breaks this level ($81), the investor feels that the price will "skyrocket." To profit, he wants to buy if the market breaks $81 on the upside, so the order is: Buy @ $82 Stop. The order must be a buy stop because it is placed higher than the current market. If the market rises to $82, the order is triggered and becomes a market order to buy. The order can then be executed at the next available price. Once the long stock position is established, the customer believes the price will skyrocket, so that it can be sold at a higher price for a profit.
A buy limit order cannot be used because it would be placed lower than the current market. |
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Which orders, if executed guarantee a specific price or better?
I Buy Limits II Buy Stops III Sell Limits IV Sell Stops StatusA A. I and II StatusB B. III and IV Correct C. I and III StatusD D. II and IV |
The best answer is C. If a "Stop" order is elected, it becomes a market order to be filled at the first opportunity. Thus, the actual price at which the order is executed is not known. On the other hand, a "Limit" order specifies that the execution must comply with the limit price specified or better. Thus, limit orders are filled at that price or better.
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Trading Markets: Trading Market Basics: Summary: Stop Order vs Using Option
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A sell stop order is used to limit a loss on a long stock position in a falling market; as a substitute for a sell stop order, a put option (giving the holder the right to sell) can be purchased with a strike price that is the same as the stop price.
A buy stop order is used to limit a loss on a short stock position in a rising market; as a substitute for a buy stop order, a call option (giving the holder the right to buy) can be purchased with a strike price that is the same as the stop price. |
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An investor has bought 500 shares of a volatile growth stock and wishes to limit downside loss. Which strategies are appropriate?
I Place a buy stop order II Place a sell stop order III Buy 5 put contracts IV Sell 5 put contracts |
The best answer is B. To limit loss on a long stock position, the investor wants to sell if the market drops. To sell in a falling market, the appropriate order is a sell stop order. Another strategy that would work is the purchase of a put contract, giving the investor the right to sell at the strike price should the market drop.
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