SIE common mistakes
SIE · Understand the traps and how to avoid them.
Classifying a transaction as primary-market or secondary-market based on whether the security is listed on an exchange, instead of asking whether the issuer receives the proceeds.
Everyday market language makes all exchange trading sound like 'the market,' so candidates overlook the capital-formation distinction the SIE tests.
What to do instead
For each transaction ask one question: does cash go to the issuer or to another investor? Issuer receives proceeds = primary market; investor-to-investor = secondary market.
Answering bond price-yield questions by saying rising market interest rates make existing bond prices rise, or by treating the coupon rate as the bond's yield.
Candidates memorize the words 'price' and 'yield' separately but do not connect bond pricing to present value of future cash flows.
What to do instead
Write the rule before answering: market yield up, existing bond price down. Then distinguish coupon rate, current yield = annual coupon / current price, and yield to maturity.
Describing an ETF as always trading at NAV like an open-end mutual fund, or saying a closed-end fund continuously issues and redeems shares.
Fund labels overlap, and candidates remember one feature instead of the full structure.
What to do instead
Compare three features for each fund: continuous issuance, exchange trading, and price source. Open-end mutual fund = NAV; ETF = intraday market price with creation/redemption; closed-end fund = exchange-traded market price, no continuous redemption.
Mixing option buyer and writer rights and obligations, such as saying a call writer has the right to buy the stock.
The words 'call,' 'put,' 'buyer,' and 'writer' are easy to memorize in pairs but hard to apply under time pressure.
What to do instead
Draw a four-cell table: call buyer right to buy; call writer obligation to sell; put buyer right to sell; put writer obligation to buy. Then add max gain and max loss for each cell.
Confusing stop orders with limit orders, for example treating a stop order as guaranteeing an execution price.
Both order types involve a trigger or price condition, so candidates collapse them into one idea.
What to do instead
For every order question, write the trigger condition and the execution condition separately: stop becomes a market order after trigger, so price is not guaranteed; limit sets maximum buy price or minimum sell price; stop-limit requires both.
Using T+2 or same-day settlement for regular-way U.S. equity trades.
Candidates rely on older study material or everyday instant-trade assumptions instead of the current settlement cycle.
What to do instead
Memorize regular-way U.S. equities and corporate bonds as T+1, and practice counting trade date plus one business day. Distinguish trade date, settlement date, and cash-account payment.
In margin questions, applying the 50% Reg T initial requirement to a maintenance-margin situation or calculating equity as market value plus the debit balance.
Initial margin and maintenance margin are taught together, and the formulas get blended.
What to do instead
Write the formulas: equity = long market value - debit balance; Reg T initial margin = 50% of purchase; maintenance requirements are separate. Read the prompt first for 'initial' versus 'maintenance.'
Treating all joint accounts as having rights of survivorship, or assuming UTMA assets can be spent for any purpose.
Account titles sound similar, and the legal ownership consequences are not obvious from the names.
What to do instead
Build an ownership table: JTWROS has survivorship; tenants in common have divided interests and no survivorship; UTMA is irrevocable and must benefit the minor; TOD passes by beneficiary designation.
Confusing prohibited practices, such as calling front-running insider trading or describing churning as excessive trading in a discretionary account without any suitability issue.
The definitions all involve misuse of customer or market information, so candidates substitute one label for another.
What to do instead
Pair each term with its core wrong: insider trading = material nonpublic information; front-running = trading ahead of a customer order; churning = excessive trading to generate commissions; mark-ups/mark-downs must be fair.
Assuming SIPC protects investors against market losses, or saying FDIC insurance covers securities held in a brokerage account.
Candidates remember that 'insurance' exists but not what each regulator or insurer actually covers.
What to do instead
Memorize one-line jurisdictions: SIPC covers missing or custodial brokerage assets up to $500,000 including $250,000 cash; FDIC covers bank deposits; SEC, FINRA, and MSRB regulate conduct and markets. None insures market value.