SIE CANDIDATE? IF YES, KNOW THE DIFFERENCES BETWEEN OPENING TRADES AND CLOSING TRADES!

In sitting for the Securities Industry Essentials (SIE) Exam, sometimes candidates, in their desire to cover all bases, fail to learn about the terminology of buying and selling securities. For example, every securities trade is either an opening trade or a closing trade. This applies not only to trading stocks, but to all other types of securities such as options and bonds.

An opening trade is when Trader Joe purchases 100 shares of XYZ Corp for $50 per share. Before the trade, Trader Joe had no financial interest in XYZ stock. Now, after this opening trade, he has a long position of 100 XYZ shares. With a long position in XYZ stock, Trader Joe hopes the share price of XYZ goes up. Thus Trader Joe has initiated a bullish position. Assume thereafter that XYZ shares do rise in value to $90. Trader Joe decides to take his profits, so he sells his XYZ shares at 90. This sale is called a closing trade or a closing transaction. Why "closing"? Because the sell transaction closes out Trader Joe's long position.

Consider Trader Sally. She believes that shares of ABC Corp. are overpriced. Trader Sally thinks that she can profit by selling 100 shares of ABC short. What does selling short mean? It means that Trader Sally borrows the 100 shares of ABC from her brokerage firm and then instructs the brokerage firm to sell those shares short for her account. Assume that Trader Sally sells ABC shares short for $100 per share. This short sale is considered an opening trade, because it initiates a short position for Trader Sally. Trader Sally hopes the price of ABC shares falls! This is a bearish position. Thereafter, assume that ABC shares fall in value to $60. Trader Sally thus has realized a paper profit of $40 per share. How does she realize this profit? She instructs her broker to repurchase ABC shares at $40. Thus this repurchase action closes out Trader Sally's short position. This repurchase is a closing transaction.

Why is it important to lean the difference between opening trades and closing ones? The answer is because the securities industry uses these terms in everyday trading, and a beginning broker would be totally at a disadvantage not being familiar or comfortable with the terminology.

Important also because the SIE Exam asks about these terms. FINRA publishes a Content Outline for the SIE Exam and Section 3.1.1 specifically indicates that knowledge of Orders and Strategies is important for SIE Candidates to study and to know.

Bob Eder covers Trading and Trading Terminology in Chapter 9 of his Study for the Securities Industry Essentials (SIE) Exam.

Here is the link to FINRA's Content Outline for the SIE Exam dated 2024. Bob Eder's Study for the SIE Exam closely follows FINRA's Content Outline so that you don't waste time in studying material not required by the SIE Exam.

Study for the Securities Industry Essentials (SIE) Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Study for the Securities Industry Essentials (SIE) Exam, or questions in general about Trading Terminology, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.

P.S. Please consider posting a written review of Bob Eder's Study for the SIE Exam on Amazon and/or Goodreads. We value your opinion!


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