3531Week2W11 - Week 2 Part I Buying and Selling Securities...

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1 Week 2 Part I Buying and Selling Securities • Getting started • Brokerage accounts • Short sales • Investor objectives, constraints, and strategies
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McGraw-Hill Ryerson Limited 2 Getting Started (c) Buy 100 Shares of Disney at $60 per share (e) $3,950 Cash in Account $6,000 Stock In Account (d) Pay Commission, Say $50 (b) Deposit $10,000 into account (a) Open a brokerage or trading account
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McGraw-Hill Ryerson Limited 3 Choosing a Broker Brokers are divided into three groups: 1. full-service brokers 2. discount brokers 3. deep-discount brokers These three groups can be distinguished by the level of service provided and the level of commissions charged.
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McGraw-Hill Ryerson Limited 4 Choosing a Broker, I. • An important change is the rapid growth of online brokers , aka e-brokers or cyberbrokers . • Online investing: – brokerage commissions –investment information
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5 Choosing a Broker, II.
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McGraw-Hill Ryerson Limited 6 Canadian Investor Protection Fund Canadian Investor Protection Fund (CIPF): Covers investors’ brokerage accounts with member firms. • Most brokerage firms belong to the CIPF, which insures each account for up to $1,000,000 for losses of securities, commodity and futures contracts.
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McGraw-Hill Ryerson Limited 7 Canadian Investor Protection Fund CIPF does not guarantee the value of any security (unlike CDIC coverage). CIPF protects whatever amount of cash and securities that were in your account, in the event of fraud or other failure.
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McGraw-Hill Ryerson Limited 8 Broker-Customer Relations Things to remember when you deal with a broker: Any advice you receive is not guaranteed. Your broker works as your agent and has a legal duty to act in your best interest. Brokerage firms make profits from commissions. Your account agreement will probably specify that any disputes will be settled by arbitration and that the arbitration is final and binding.
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McGraw-Hill Ryerson Limited 9 Brokerage Accounts A Cash account is a brokerage account in which securities are paid for in full. A Margin account is a brokerage account in which securities can be bought on credit.
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McGraw-Hill Ryerson Limited 10 Margin Accounts • In a margin purchase , the portion of the value of an investment that is not borrowed is called the margin . The portion that is borrowed incurs an interest charge. – This interest is based on the broker’s call money rate. – The call money rate is the rate brokers pay to borrow money to lend to customers in their margin accounts.
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Example: Margin Accounts, The Balance Sheet You buy 1,000 Wal-Mart shares at $24 per share. You put up $18,000 and borrow the rest. Amount borrowed =
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This note was uploaded on 05/01/2011 for the course ADMS 3531 taught by Professor Profp during the Winter '10 term at York University.

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3531Week2W11 - Week 2 Part I Buying and Selling Securities...

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