8.8 Brokerage Accounts

Margin accounts are typically used by wealthy clients who have high risk tolerances because these accounts allow investors to:

• buy and sell securities faster than they can with cash accounts

• pay, in advance, for all securities

• place buy stop orders or sell stop orders

• borrow money from their brokerage firm to buy stocks, bonds, and mutual funds

Which of the following statements is TRUE regarding brokerage accounts?

I. full-service brokerage firms provide guidance to investors

II. brokerage accounts are prefunded arrangements between an investor and a broker-dealer

III. investors who want to own stocks and bonds do so, almost exclusively, via brokerage accounts

IV. a self-directed brokerage account is appropriate for an investor who does not want or does not need investment guidance

• I, II, and IV only

• I, II, and III only

• I, II, III, and IV

• I and II only

A self-directed cash brokerage account:

• requires investors to have money in the account before buying investments

• requires an investor to use the services of a broker

• charges a higher commission in return for more services, such as banking privileges

• all of these answer choices are correct

Stockbrokers are often known as:

• investment representatives

• account managers

• registered representatives

• all of these answer choices are correct

Which of the following pairs are examples of self-directed discount brokerage firms?

I. Charles Schwab and Merrill Lynch

II. TD Ameritrade and E*Trade

III. Raymond James and Morgan Stanley

IV. Fidelity and Charles Schwab

• I, II, and IV only

• II and IV only

• I and II only

• III only

SIPC insurance covers:

• cash in customer accounts up to $250,000

• securities in customer accounts up to $500,000

• nothing because SIPC is not insurance

• both cash in customer accounts up to $250,000 and securities in customer accounts up to $500,000

A market order is:

• the fastest way to transact a stock market trade

• tells the brokerage firm to only buy or sell at a specific price

• stays in effect until your specific price is available

• instructs a brokerage firm to sell when a set point has been reached

If you, as an investor, wanted to guarantee purchasing a stock at a specific price or better, which type of order would you use?

• a market order

• a buy stop order

• a sell limit order

• a limit order

When purchasing stocks, an investor can:

• place a market order

• place a stop order

• use the guidance and support of a registered representative

• place a market order, stop order, or use the guidance or a registered representative

How are most shares in stock held today?

• physically, in paper form

• in the "cloud"

• in certificate form

• in street name