Costs of Trading Securities
Chapters in this video
- 0:00 The one thing that determines every trading cost: capacity
- 1:03 Broker equals agent equals commission: the matchmaker rule
- 2:55 Dealer equals principal equals markup or markdown
- 4:05 The FINRA 5% trap: guideline, not hard cap
- 5:01 Bid-ask spread as implicit cost, not a line-item fee
- 6:18 Rapid-fire exam recap
What this video covers
- How broker capacity (agent versus principal) determines which of the three trading costs applies to a given transaction
- When a commission is charged, why it must be disclosed on the trade confirmation, and the exact matchmaker role that creates agency status
- The difference between a markup (added when selling to a customer) and a markdown (subtracted when buying from a customer)
- Why FINRA's 5% markup policy is a guideline, not a hard cap or automatic safe harbor, and how the fair-and-reasonable standard actually applies
- What the bid-ask spread is, why it is an implicit cost rather than a separately itemized fee, and how illiquidity widens the spread
- How to spot the exam's favorite trap answer claiming markups above 5% are automatic violations
- How to spot the second favorite trap answer treating the bid-ask spread as a line-item charge on a trade confirmation
Read the full lesson, free
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