Chapter 9 - Equity Securities: Equity trading Flashcards
define cash account
most basic type of investment account
not granted credit to purchase securities
must make full payment before settlement date
define margin account
the investment dealer/brokerage firm lends clients money to buy securities
client must contribute part of the full price; remainder is borrowed
interest is charged on borrowed amount
which account is more risky? margin or cash?
margin is more risky due to the interest on the loan
define long position
you own the security
define short position
created when you sell securities
what’s the problem with short selling
there’s an unlimited potential loss
gives incentive for people to push down the value of the stock unethically to make a profit
define short squeeze
buy stocks to push stock price up
define margin
the difference between market value and borrowed funds
when the margin falls below a certain level, what happens?
client recieves a margin call
firm that has lent money requires more money from client
if no funds are paid, securities are sold
if securities increase in value - margin is create and can be used by client
what are short sales
when an investor sells securities that they don’t own - they borrow the securities from an investor who owns them
the investor who shorts the securities must buy them back in the future to settle the trade
the investor received proceeds when they short the security and must deposit a % of the market value of the securities
define market order
executed at the best available price
define limit order
executed only if a specific price can be obtained
define day order
only valid for the current day - it will be cancelled if not executed by end of day
define open or good till cancelled order
limit orders that remain open until executed or specific date
define all or none order
executed only if total # of share can be bought
