Retail Securities cheat sheet

Equity order types: market orders prioritize immediate execution at the best available price; limit orders set a maximum buy price or minimum sell price and may remain unfilled.

A stop order becomes a market order once the stop price trades; a stop-limit order becomes a limit order at the stop trigger, so it can trigger yet fail to execute.

T+1 settlement applies to most U.S. corporate securities, while options settle T+1 and U.S. Treasury securities settle T+1 under current rules; confirm settlement cycle from the offering document.

Bid-ask spread equals ask minus bid; a wide spread raises the implicit trading cost, especially for illiquid small-cap shares.

Marketable limit buy orders are priced at or above the current ask; non-marketable limit buys sit below the ask and add liquidity.

Mutual fund orders execute at the next computed net asset value after receipt; ETFs trade intraday at market prices that can deviate from NAV.

FINRA Rule 2111 suitability requires a reasonable basis to believe a recommendation fits the customer's profile, including risk tolerance, time horizon, and liquidity needs.

Regulation Best Interest (Reg BI) requires broker-dealers to act in the retail customer's best interest and disclose conflicts; it is a standard distinct from fiduciary duty.

Regulation T initial margin for long equities is 50% of purchase price; FINRA maintenance margin is 25% of long market value, with higher house requirements common.

Margin call equity formula: equity = long market value minus debit balance; a maintenance call arises when equity falls below the required percentage of market value.

Cash accounts settle on a settled-funds basis; using unsettled proceeds to buy and sell again can trigger a free-riding violation under Regulation T.

Pattern day trader status applies to margin accounts with four or more day trades in five business days when day trades exceed 6% of total trades; minimum equity is $25,000.

SIPC protects up to $500,000 per customer, including $250,000 for cash claims, against broker-dealer failure, not against market losses.

Joint tenants with right of survivorship pass the deceased owner's share to the surviving owner; tenants in common pass shares through the estate.

Transfer on death registration avoids probate for the named beneficiary but does not reduce estate tax exposure.

Custodial accounts under UTMA/UGMA are irrevocable gifts; the custodian manages assets for the minor, who gains control at the state's age of majority.

Bond price and yield move inversely; a bond trading at a discount has a yield to maturity above its coupon rate.

Current yield = annual coupon payment divided by market price; yield to maturity also captures amortization of premium or discount and reinvestment assumptions.

Duration approximates percentage price change for a 1% change in yield; a duration of 5 implies roughly a 5% price move for a 100-basis-point yield shift.

Municipal bond interest is generally federal tax-exempt; tax-equivalent yield = municipal yield divided by (1 minus marginal tax rate).

Call risk hurts bondholders when rates fall because the issuer refinances; put features benefit holders when rates rise.

Annuities: fixed annuities guarantee a rate; variable annuities shift investment risk to the contract owner and carry mortality and expense charges.

Expense ratio reduces fund net returns; a 1% ratio on a $50,000 position costs about $500 annually, independent of performance.

Concentration and liquidity risks are suitability factors: illiquid alternatives and non-traded REITs may not fit customers needing short-horizon access to funds.

Insider trading prohibitions cover material nonpublic information obtained through a duty of trust or confidence; tipping and misappropriation are also violations.

Selling away requires written notice to and approval from the employing firm before outside securities business is conducted.

Borrowing from or lending to customers is generally restricted unless the firm permits it and the customer is a financial institution or the loan is on firm-approved terms.

Communications with the public must be fair and balanced, must not omit material facts, and retail communications generally require principal approval before use.

Anti-money-laundering programs require a customer identification program, suspicious activity reporting, and currency transaction reports for cash over $10,000.

Churning is excessive trading relative to the customer's objectives, measured by turnover and cost-to-equity ratios; it breaches the duty of fair dealing.

Unauthorized trading violates firm policy and can create liability; discretionary authority requires written authorization and firm acceptance.

Senior investor protections include trusted contact designations and temporary holds on suspicious disbursements under applicable rules.

Expected portfolio return equals the weighted average of asset expected returns; portfolio variance depends on weights, individual variances, and pairwise covariances.

Diversification reduces unsystematic risk; systematic market risk remains and is measured by beta relative to the market portfolio.

Beta above 1 indicates greater sensitivity to market moves; beta below 1 indicates lower sensitivity; beta near zero implies little market correlation.

Sharpe ratio = (portfolio return minus risk-free rate) divided by standard deviation; higher values indicate better risk-adjusted return.

Correlation below 1 between assets lowers portfolio volatility versus a single-asset portfolio at the same average return.

Asset allocation across equities, fixed income, and cash is a primary driver of long-run portfolio variability and return for retail accounts.

Rebalancing restores target weights and can control drift; it is a discipline rule rather than a prediction of market direction.

Real return approximates nominal return minus inflation; inflation erodes purchasing power of fixed nominal cash flows.