Q1. Which of the following statements about trading stocks or securities markets is least accurate?

A)   A stop-buy is placed above the market price to protect short sellers of a security.

B)   The NASDAQ is an example of an over-the-counter market.

C)   Commission brokers at the New York Stock Exchange trade for their own accounts.

Q2. An investor sold a stock short and is worried about rising prices. To protect himself from rising prices he would place a:

A)   limit order to buy.

B)   stop order to buy.

C)   stop order to sell.

Q3. To maintain an orderly market, a specialist would most likely:

A)   buy in an up market.

B)   close the limit order book when the market makes abrupt moves.

C)   sell in an up market.

Q4. Members of the exchange who act as brokers but do not work for a specific brokerage firm are referred to as:

A)   commission brokers.

B)   floor brokers.

C)   exchange brokers.

Q1. Which of the following statements about trading stocks or securities markets is least accurate?

A)   A stop-buy is placed above the market price to protect short sellers of a security.

B)   The NASDAQ is an example of an over-the-counter market.

C)   Commission brokers at the New York Stock Exchange trade for their own accounts.

Correct answer is C)         

Commission brokers trade for a brokerage firm. Registered traders trade on their own behalf.

Q2. An investor sold a stock short and is worried about rising prices. To protect himself from rising prices he would place a:

A)   limit order to buy.

B)   stop order to buy.

C)   stop order to sell.

Correct answer is B)

A limit order to buy is placed below the current market price.

A limit order to sell is placed above the current market price.

A stop (loss) order to buy is placed above the current market price.

A stop (loss) order to sell is placed below the current market price.

A stop order becomes a market order if the price is hit.

Q3. To maintain an orderly market, a specialist would most likely:

A)   buy in an up market.

B)   close the limit order book when the market makes abrupt moves.

C)   sell in an up market.

Correct answer is C)

Specialists act as brokers handling the limit order book as well as dealers by buying and selling stocks for their own account to maintain an orderly market and provide liquidity when there is inadequate order flow. Therefore, in order to provide additional liquidity and maintain the market flow specialist would need to sell in an up market and buy in a down market.

Q4. Members of the exchange who act as brokers but do not work for a specific brokerage firm are referred to as:

A)   commission brokers.

B)   floor brokers.

C)   exchange brokers.

Correct answer is B)

Floor brokers are independent brokers that help other brokerage firms fill orders when they are unable to handle the volume of orders.

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