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Series 6 Investment Company and Variable Contracts (Series6 ) Practice Tests & Test Prep by Exam Edge - Review



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Series 6 Invest Company Variable Contracts Exam - Reviews


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"The questions in the practice tests were very similar to what was on the actual FINRA Series 65 exam. I liked that you could take a timed test or take a test at my own pace with the ability to review the answers as I go. That really helped me to focus on where I needed to spend mor time studying. Thanks for putting together such a user friendly program."



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See why our users from 154 countries love us for their exam prep! Including 110 reviews for the Series 6 Investment Company and Variable Contracts exam.

Exam Edge is an industry leader in online test prep. We work with institutional partners to offer a wide array of practice tests that will help you prepare for your big exam. No matter how niche your field of interest might be, we're here to help you prepare for test day.

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Series 6 Invest Company Variable Contracts Exam - Test Reviews Sample Questions

Margin accounts may be used for which of the following?

Correct Answer:
options
margin accounts offer investors a way to borrow money from their broker to purchase securities. this type of account amplifies the buying power of the investor, allowing them to buy more shares than they could with just their available funds. however, there are specific regulations and conditions under which margin accounts can be used.

options trading is one area where margin accounts are frequently employed. options are contracts that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) a security at a specific price within a certain period. while options themselves can be purchased on margin, the requirements to do so are generally stricter compared to purchasing regular stocks. broker-dealers often require a higher minimum account balance for those who wish to trade options on margin. this is because options trading can be highly speculative and poses a greater risk than traditional stock trading.

it's important to note that not all securities can be purchased on margin. initial public offerings (ipos) and stocks trading under $5 per share are typically excluded. ipos are excluded because they can be highly volatile shortly after they begin trading, which adds additional risk that brokerage firms are not willing to take on through margin lending. similarly, stocks trading under $5, often referred to as penny stocks, are excluded due to their high volatility and lower market capitalization, which make them risky investments.

regarding custodial accounts, which are established for minors under a guardian's management, margin trading is not permitted. these accounts must be operated as cash accounts. the rationale here is based on the risk profile of margin trading. since margin involves borrowing, it carries the risk of significant losses, which may not be suitable for custodial accounts intended to safeguard the financial interests of minors.

in summary, while margin accounts can expand an investor’s capabilities by providing additional capital for trading, they come with restrictions. options can be purchased on margin, but with strict requirements due to their speculative nature. on the other hand, buying ipos, penny stocks, or using margin in custodial accounts for minors is prohibited, reflecting the high-risk nature of these investments and the protective intent of regulations surrounding accounts for minors.