SIE Trading and Customer Accounts Practice Questions
Question 1
A customer wants an order to buy XYZ stock to be executed immediately at the best available price, without specifying a particular price. Which order type should be used?
- A. Limit order
- B. Market order
- C. Stop order
- D. Stop-limit order
Show answer and explanation
Correct answer: B. Market order
A market order guarantees execution at the best currently available price but does not guarantee a specific price. Limit orders specify a maximum/minimum price, and stop and stop-limit orders only become active once a trigger price is reached.
- A. A limit order specifies a maximum (or minimum) acceptable price, which is the opposite of executing immediately at whatever price is available.
- B. Correct. A market order executes immediately at the best available price without specifying a price, matching the customer's instruction.
- C. A stop order only becomes a market order once a specified stop price is triggered; it isn't for immediate execution at the current market.
- D. A stop-limit order becomes a limit order (not immediate execution) once triggered, and requires a specified price.
Question 2
A margin customer signs several account documents. Which document gives the broker-dealer the right to pledge the customer's margin securities as collateral for the firm's own bank loans?
- A. The credit agreement
- B. The hypothecation agreement
- C. The loan consent agreement
- D. The trading authorization
Show answer and explanation
Correct answer: B. The hypothecation agreement
The hypothecation agreement pledges the customer's securities as collateral for the margin loan and allows the firm to re-pledge them. The loan consent agreement is optional and covers lending securities to short sellers.
- A. This document discloses the terms of the loan, such as how interest is charged. It does not authorize pledging the securities.
- B. Right: hypothecation is the pledge of customer margin securities as collateral, and it is required for a margin account.
- C. This optional document lets the firm lend the customer's securities to short sellers, which is different from pledging them for a bank loan.
- D. This lets another person place orders in the account. It says nothing about collateral for the firm's borrowing.
Question 3
A customer wants to purchase $10,000 of marginable stock in a margin account, subject to the current Regulation T initial margin requirement of 50%. How much must the customer deposit as initial margin?
- A. $2,500
- B. $7,500
- C. $5,000
- D. $10,000
Show answer and explanation
Correct answer: C. $5,000
Under Regulation T's 50% initial margin requirement, the customer must deposit 50% of the purchase price: 50% × $10,000 = $5,000. The remainder may be financed as a margin loan from the broker-dealer.
- A. $2,500 reflects only 25%, not the current 50% Reg T initial margin requirement.
- B. $7,500 (75%) overstates the current 50% Reg T initial margin requirement.
- C. Correct. At the 50% Reg T initial margin requirement, the customer must deposit $5,000 (50% of $10,000) and may finance the remainder.
- D. $10,000 represents full cash payment, not a margin purchase financed partly by the broker-dealer.
Considering a career as an advisor?
Explore careers at ParsonexQuestion 4
A share has quoted bid $15.00 and ask $15.20. An investor buys at the ask and instantly sells at the bid with unchanged quotes. What is the gross round-trip price loss on 100 shares?
- A. $200
- B. $20
- C. $0
- D. $10
Show answer and explanation
Correct answer: B. $20
The investor pays the ask and receives the bid, so each share loses the $0.20 spread. Across 100 shares that is a $20 gross loss before fees.
- A. This is ten times the actual loss; the spread is $0.20 per share, not $2.00.
- B. The $0.20 spread times 100 shares equals a $20 round-trip loss.
- C. A loss does occur because the purchase is at the higher ask and the sale at the lower bid.
- D. This counts only half the spread, as if the sale were at the midpoint rather than the bid.