Securities Trader Exam (Series 57) Study Guide

50 scored questions.

105 minutes (1 hour and 45 minutes).

A score of 70%.

$105.

About 2 minutes per question — 105 minutes divided across 50 scored questions leaves just over 2 minutes each.

The Securities Industry Essentials (SIE) exam. Candidates typically must pass both the SIE and the Series 57 to earn the Securities Trader registration.

A registered market maker must maintain continuous two-sided quotations (a bid and an offer) meeting minimum size and price (quoting obligation) requirements during regular market hours.

Reg SHO governs short selling. Before a short sale, a broker-dealer must have reasonable grounds to believe the security can be borrowed and delivered — the 'locate' requirement — to prevent naked short selling.

Bona fide market makers may be exempt from the locate requirement for short sales in connection with genuine market-making activity, since they provide liquidity and may need to sell short to offset customer buying.

A market order executes immediately at the best available price with no price limit. A marketable limit order is a limit order priced at or through the current opposite-side quote, so it is immediately executable but capped at its limit price.

The Securities Trader Qualification Exam. Passing it qualifies an individual to engage in proprietary trading and market-making activities in equity, preferred, and convertible debt securities.

A short sale is the sale of a security not yet owned, with the expectation that the price will fall and the seller can profit by purchasing the security later at a lower price.

A tick is the smallest increment by which a stock price can change; historically a sixteenth of a dollar, but now typically one cent for stocks.

The bid price is the highest price a buyer will pay for a security; the ask price is the lowest price a seller will accept. The difference between them is the spread.

Front running is the illegal practice of a broker executing trades for their own account before executing orders for clients that would move the price in the broker's favor.

A circuit breaker is a temporary halt in trading triggered when the market index falls by a specified percentage, designed to prevent panic selling and protect investors during extreme volatility.

Naked short selling is selling short without having borrowed the shares first. It's restricted because it can drive prices down artificially and create settlement failures.

A finder's fee is compensation paid to an intermediary who brings together parties to a transaction, commonly used in private placements and mergers.

Best execution requires brokers to execute customer orders in the market at prices that are most favorable to the customer and conduct the transaction in a timely manner.

A limit order specifies the maximum price a buyer will pay (or minimum a seller will accept); a market order executes at the current market price. Limit orders may not execute if the price target isn't reached.

Customer suitability requires that a registered representative only recommend investments that are appropriate for the customer's financial situation, investment objectives, and risk tolerance.

Insider trading is buying or selling securities based on material non-public information. It's prohibited because it unfairly disadvantages other investors and undermines market integrity.

The ex-dividend date is the date by which an investor must have purchased a stock to receive the next dividend. Investors who buy on or after this date do not receive the upcoming dividend.

Settlement is the process of completing a securities transaction, including the transfer of ownership of the security and payment of funds, typically occurring T+2 (two business days after the trade).

The lockup period is a contractual period (typically 180 days) during which insiders and company founders are prohibited from selling their shares following an IPO.

Margin is the use of borrowed funds from a broker to purchase securities, allowing investors to control a larger position than they could with cash alone. Interest is charged on borrowed amounts.

A penny stock is a low-priced stock (typically under $5) of small companies; they are subject to strict disclosure requirements and suitability rules due to higher fraud risk.

Naked call writing is selling call options without owning the underlying security. It's risky because the seller's losses are theoretically unlimited if the stock price rises significantly.

A wash sale occurs when an investor sells a security at a loss and buys the same or substantially identical security within 30 days. The loss is disallowed for tax purposes and added to the new security's cost basis.

Pump and dump is a fraud scheme where promoters artificially inflate a stock's price through false claims, then sell their shares at inflated prices. It's illegal because it defrauds uninformed investors.

Block trading involves the negotiated sale or purchase of large blocks of securities (typically over 10,000 shares) outside the regular market, allowing traders to avoid large market impact.

Rule 10b-5 is a broad antifraud rule prohibiting any deceptive or manipulative conduct in connection with the purchase or sale of any security; it's foundational to SEC enforcement.

Churning is excessive trading in a customer's account primarily to generate commissions for the broker, rather than serving the customer's investment objectives.

Layering is the practice of placing and quickly canceling multiple orders to create a false impression of market activity and demand, artificially moving prices in a desired direction.