Stage 2
51 questions
What do you check first with a broker?
Whether it's in a regulator's public register and which company you're signing the contract with.
How does protection differ for securities and cash?
Securities are segregated and protected if the broker fails. Cash is a deposit and only protected up to the deposit insurance limit.
What's a reliable warning sign?
When someone contacts you out of the blue, pushes you to deposit or promises returns.
Why isn't a zero order fee automatically cheap?
Because the costs are then usually hidden in the spread or in payments from the trading venue.
Which costs weigh most for long term investors?
Ongoing costs such as custody fees, because they apply to the whole growing holding.
Why does the price of moving your portfolio matter?
Because it decides how freely you can switch later.
What happens to your shares if your broker goes bust?
They belong to you, are handed back and transferred. The broker's creditors can't touch them.
What is investor compensation for?
For gaps caused by mistakes or misuse in custody. It covers much less than deposit insurance.
Why is it different with crypto exchanges?
Without separate custody you often only have a claim against the company and stand behind many other creditors if it fails.
Why should you answer the experience questions honestly?
Because they trigger a protection that blocks risky products or adds warnings.
Where can you withdraw money to?
Usually only to a registered reference account in your name.
What's the most important tax difference with foreign accounts?
Usually no tax is withheld automatically. You have to declare everything yourself in your tax return.
What do you own with a crypto backed security?
A debt security of the issuer with its default risk and no coins, even if coins are deposited.
Why does proof of reserves alone say little?
Because it only shows what's there, not how much the exchange owes its customers.
What's the practical rule of thumb?
Only leave small amounts on the platform and hold larger amounts yourself.
What does a wallet actually hold?
The private keys. The balances themselves are recorded on the blockchain.
Why is backing up the seed phrase enough?
Because modern wallets derive all keys from that one value.
When may you enter your seed phrase anywhere?
Only when you're restoring your own wallet yourself. Any other request is a scam attempt.
What do you own when your coins sit on an exchange?
Usually a claim against the company, not the coins themselves.
What does it mean when a platform offers you interest on your coins?
That it's using your coins. Without that there'd be no interest.
Which risk do you swap when you hold your own coins?
The risk of the platform failing for the risk of your own mistakes, such as lost keys or fake websites.
What does market depth in the order book show?
How much volume is waiting at each price level, as a snapshot. Orders can be withdrawn at any time.
Why is the unrealized gain or loss misleading?
Because it changes constantly and only becomes a real result when you sell.
Is the price shown your execution price?
Not necessarily. Depending on venue and provider, the displayed and actual price can differ.
What does a limit order guarantee and what not?
It guarantees the maximum price, but not that anything is bought at all.
Why can a market order be filled worse than displayed?
Because when there's too little on offer at the best level, it's filled further at worse levels.
What's the drawback of a stop limit order?
In a fast falling market it may not be filled at all and then doesn't protect you.
What happens with an overnight price gap?
The stop is filled at the next available price, which can be much worse.
What follows from a wider stop distance?
A correspondingly smaller position, so the risk stays the same.
Why are round numbers poor places for a stop?
Because many stops cluster there and short overshoots trigger them too.
Lena buys at €100.10 and immediately sells at €99.90. Where did the money go?
It's the spread. You pay it on every immediate purchase and sale, even if the price doesn't move at all.
When does the gap between the two prices get bigger?
When prices swing a lot, when little is traded and around important news.
How do you find out what an order really cost you?
You compare your buying price with the midpoint between the best buying and the best selling price at the moment of your order.
Which costs weigh more in the long run?
Ongoing costs, because they hit your whole growing wealth every year.
Why isn't the cost ratio alone enough?
Because trading costs inside the fund and tax effects aren't included in it.
When do foreign currency mark ups apply?
When buying and selling, and with every distribution in a foreign currency.
Does currency risk disappear if an ETF is traded in euros?
No. What counts is the currency the companies in it earn their money in.
Roughly what does currency hedging cost?
Roughly the interest rate gap between the two currencies, every year.
Why is the trade off different for bonds than for stocks?
Because the currency swing can easily exceed the comparatively small return there.
Why is the open a poor moment for an order?
Because prices swing most and spreads are widest while the overnight news is processed.
What happens when the home exchange of the shares in the ETF is closed?
The value is estimated. Dealers charge a wider spread for that, and the price deviates more.
What's the drawback of round the clock trading?
There's no opening auction to bundle orders. New news hits during quiet hours, and jumps are more likely.
Does a savings plan earn more than a lump sum?
Not on average. With a lump sum the money is invested longer. The savings plan makes outcomes less extreme instead.
What's the real value of a savings plan?
It takes recurring decisions off your hands, and with them the chances to act at the wrong moment.
Which habit has the biggest effect?
Raising your savings rate every year when your income goes up.
What don't you learn in a demo account?
How you react to real losses. The pain of losing only comes with real money.
Why do demo results look too good?
Because slippage, partial fills and large orders moving the price are usually missing.
Why a limit order just above the current price?
It's almost certain to be filled and still has a ceiling on the price.
What's the main problem with small orders?
Fixed costs make up a large part of the amount.
How do you check how well your order was filled?
You compare your price with the price on a major exchange at the same time, ideally over several orders.