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Shares of HIJ plc are trading at 1000p. You borrow 50 shares of HIJ plc from your stockbroker to short sell, and are credited with £500 as a result. After opening your short trade, the price of HIJ plc falls to 700p, at which point you decide to close (cover) your position. Ignoring any charges or commission, how much profit or loss have you made in this scenario?
Explanation
You made £500 from opening the trade, then spent 700p x 50 = 35,000p or £350 to cover your position, meaning your profit was £150.
If Company OPQ reports an annual profit of £163 million, but most analysts were expecting a figure of at least £200 million, how would you expect levels of supply and demand to affect the price of its shares?
Explanation
Despite Company ABC posting a healthy profit, it wasn't as large as the market was expecting. As the company isn't doing as well as predicted, this is likely to make the shares less attractive to investors, triggering a selloff. The resulting increase in the supply of shares on the market will cause the price to slump.
As a trader, why might a tight spread be advantageous?
Explanation
With a wider spread, you need the market to move in your favour to a more significant degree just to break even on your trade.
If you sell 500 shares short at 4000p, what is the maximum amount of money you could lose (ignoring any charges or commission)?
Explanation
When you sell short, your losses could technically be unlimited as the share price could keep rising forever.
If a broker provides recommendations on investment opportunities, but leaves the final decision up to their client, what kind of service are they offering?
Explanation
A full-service broker will actively manage a client's investments and provide personal advice, while an execution-only broker will simply carry out a client's instruction to trade on demand.
Sellers in the market are commonly referred to as which animal?
Explanation
When prices are falling, the downward movement of the market resembles a bear swiping down to attack its opponent.
If you sell 100 shares short at 3000p, what is the maximum amount of profit you could make (ignoring any charges or commission)?
Explanation
If the stock sinks to zero you would make 100 x 3000p = £3000.
If you decide to buy GBP/USD and your broker quotes a bid price of 1.54296 and an ask price of 1.54304, at which price will you open your trade?
Explanation
You always buy at the ask (higher) price and sell at the bid (lower) price.
Which of the following markets are traded on exchange?
Explanation
Currencies and properties are traded between individual participants without the need for a central exchange.
Which of the following can be considered as institutional investors?
Explanation
Institutional investors are organisations that deal in the financial markets, generally on a much larger scale than retail traders. Pension funds and life assurance companies are other examples of institutional investors.
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