Series 7 review

Market order

Filled immediately at the best available price

Market order

Always filled

Limit order

Filled at a specific price or better

Limit order

Used when not ready to buy or sell at the market price

Limit order

Buy limits placed below market price

Limit order

Sell limits placed above market price

Limit order

Not always filled

Stop order (stop-loss)

Turns into a market order when a trigger price is hit

Stop order (stop-loss)

Buy stops are used to protect short sale gains

Stop order (stop-loss)

Buy stops placed above market price

Stop order (stop-loss)

Sell stops are used to protect long sale gains

Stop order (stop-loss)

Sell stops placed below market price

Stop order (stop-loss)

Always filled if stop is triggered

Stop-limit order

Turns into a limit order when a trigger price is hit

Stop-limit order

Has two prices: trigger price and limit price

Stop-limit order

Buy stops are used to protect short sale gains

Stop-limit order

Buy stops placed above market price

Stop-limit order

Sell stops are used to protect long sale gains

Stop-limit order

Sell stops placed below market price

Stop-limit order

Protects against the security being sold during a free fall

Stop-limit order

Not always filled

Treasury bills

Maturity: One year or less

Treasury bills

Purchase size: $100 up to $5 million

Treasury bills

Interest paid: None; price is discount to par

Treasury bills

Quotes: Yield

Treasury notes

Maturity: 2 to 10 years

Treasury notes

Purchase size: $100 up to $5 million

Treasury notes

Interest paid: Semiannually

Treasury notes

Quotes: Bond points in 32nds

Treasury bonds

Maturity: 10 to 30 years

Treasury bonds

Purchase size: $100 up to $5 million

Treasury bonds

Interest paid: Semiannually

Treasury bonds

Quotes: Bond points in 32nds

Market risk

Stocks

Market risk

High-yield bonds

Market risk

Buy puts on broad-based index

Market risk

Short broad-based exchange-traded funds (ETFs)

Purchasing power risk

U.S. Treasuries

Purchasing power risk

Safe fixed-income securities, such as bonds and preferred stock

Purchasing power risk

Invest in stocks, real estate investment trusts (REITs), and American Depositary Receipts (ADRs)

Interest rate risk

Bonds, especially those with high durations

Interest rate risk

Preferred stock

Interest rate risk

Invest in stocks and convertible bonds

Credit/default risk

Bonds, especially high-yield bonds

Credit/default risk

Invest in safer bonds and stocks, and Treasuries

Business risk

Stocks and bonds

Business risk

Diversification

Prepayment risk

Mortgage-backed securities

Prepayment risk

Avoid these types of investments

Political risk

Emerging markets

Political risk

Avoid foreign investments

Liquidity risk

Private placements, Direct Participation Programs (DPPs), hedge funds, auction rate securities, thinly traded stocks and bonds, and municipal bonds

Liquidity risk

Invest in liquid investments, such as actively traded stocks and Treasuries

Currency risk

Foreign investments

Currency risk

Hedge with foreign currency futures and options

Call risk

Callable bonds

Call risk

Invest in noncallable bonds

Reinvestment risk

Bonds that pay interest and especially callable bonds

Reinvestment risk

Invest in stocks and noncallable zero-coupon bonds, such as STRIPS (Separate Trading of Registered Interest and Principal of Securities)

Cumulative preferred

Missed dividends accumulate and must be paid before any common dividends

Cumulative preferred

Preferred dividends must be paid in full before common shareholders receive dividends

Callable preferred

Issuer can redeem (call) shares after a set date

Callable preferred

Shareholders typically receive par value when called

Callable preferred

Issuers call shares when interest rates fall

Callable preferred

Common stock is not callable

Convertible preferred

Can be converted into common stock at a set ratio

Convertible preferred

Value rises as common stock price rises

Convertible preferred

Typically pays lower dividends than nonconvertible preferred

Convertible preferred

Price is driven by the issuer’s common stock price

Participating preferred

Receives fixed dividend plus potential extra dividends

Participating preferred

Extra dividends declared when company performs well

Participating preferred

Allows shareholders to share in higher earnings

Customer orders have priority

Firm cannot trade for its own account ahead of customer orders

Customer orders have priority

Customer limit orders must be executed before firm trades at that price

Front running

Placing firm trades ahead of large customer orders is prohibited

Trading ahead of research reports

Firm cannot trade on advance knowledge of a research report before it is released

Acting as both broker and dealer in same trade

Firm cannot act as both agent and principal in the same transaction

Acting as both broker and dealer in same trade

Broker charges commission; dealer uses markup/markdown, not both

No interpositioning

Firm cannot route orders through another firm to create extra commissions

No interpositioning

Firm must seek best execution without unnecessary intermediaries

Backing away from a firm quote

Firm cannot give a quote and then refuse to honor it

Market manipulation

Any attempt to artificially influence market price is prohibited

Trading pools

Groups trade to push prices higher and attract outside investors (pump and dump)

Wash trades

Buying and selling same security to create fake trading activity

Painting the tape

Series of trades reported to create illusion of market activity

Marking the close

Trading or reporting trades at close to influence closing price

Marking the open

Trading or reporting trades at open to influence opening price

Good delivery of securities

Securities must be delivered in proper form or they can be rejected and settlement will not occur

Physical certificates endorsement

Must be signed on the back by the registered owner exactly as the name appears

Stock/bond power

Used as an alternative to endorse and transfer multiple certificates

Signature guarantee

Must be provided by a FINRA member firm, bank, or savings institution

Signature guarantee

Also called a medallion guarantee and is not the same as a notary

Registered bonds delivery

Must be in $1,000 minimum face amount or multiples of $1,000

Registered bonds delivery

Maximum denomination per bond is $100,000

Mutilated securities

Cannot be accepted unless accompanied by a validation letter from transfer agent or issuer

Stock certificate delivery

Must be in round lots of 100 shares or multiples of 100

Stock certificate delivery

Certificates under 100 shares must combine to equal 100-share units

Good delivery example

400 shares can be delivered as one 400-share certificate or four 100-share certificates

Good delivery exception

Certificates that create odd lots (like 40 + 40 + 40 = 120) are not good delivery

Transfer agent role

Reissues shares into proper denominations when delivery is not in good form