Trading Unit

### What is a trading unit in the context of stock markets? - [ ] The minimum price at which a stock can be traded. - [x] The standard number of shares for trading purposes. - [ ] The maximum number of shares an investor can buy. - [ ] The number of shares an investor must hold to vote. > **Explanation:** A trading unit in stock markets typically refers to the standard number of shares that are accepted for routine trading activities, usually 100 shares, known as a round lot. ### What is a round lot? - [x] 100 shares of a stock. - [ ] Any number of shares less than 100. - [ ] 1000 shares of a stock. - [ ] 50 shares of a stock. > **Explanation:** A round lot is conventionally defined as 100 shares of stock, considered the standard trading unit. ### What is an odd lot? - [ ] Any multiple of 100 shares. - [x] A quantity of shares less than the standard trading unit. - [ ] Exactly 1000 shares of stock. - [ ] One single share of stock. > **Explanation:** An odd lot is a quantity of shares that is less than the standard trading unit, such as any amount less than 100 shares in stock trading. ### Why might odd lots incur higher transaction costs? - [x] They are less standard and may involve additional handling by brokers. - [ ] They are automatically more expensive due to their nature. - [ ] They require approval from the exchange. - [ ] Odd lots are taxed at a higher rate. > **Explanation:** Odd lots often incur higher fees because they are less standard, requiring more specialized handling by brokers and possibly lower liquidity. ### What does standardizing trading units achieve in financial markets? - [x] It enhances market efficiency. - [ ] It complicates transactions. - [ ] It restricts trade volumes. - [ ] It discourages institutional traders. > **Explanation:** Standardizing trading units improves market efficiency by simplifying trading processes, allowing for easier comparison, pricing, and execution of trades. ### Can trading units vary between different types of securities? - [x] Yes, trading units can vary for different securities. - [ ] No, trading units are the same for all securities. - [ ] Only government bonds have different trading units. - [ ] Cryptocurrency trading units are always smaller. > **Explanation:** Trading units can indeed vary depending on the type of security; for instance, stocks and bonds often have different standard trading units. ### How is a block trade different from a trading unit? - [ ] It is smaller than the standard trading unit. - [x] It involves a significantly larger quantity of securities. - [ ] It refers to a single share of stock. - [ ] It standardizes trading prices. > **Explanation:** A block trade involves a substantially larger quantity of securities compared to the typical trading unit, often impacting market prices significantly. ### Are trading units applicable to cryptocurrencies? - [ ] Yes, cryptocurrencies use 100 units as a standard. - [ ] Yes, but only to major cryptocurrencies. - [x] No, cryptocurrencies can be traded in any fraction. - [ ] Yes, trading units are 1000 units for cryptocurrencies. > **Explanation:** Cryptocurrencies do not follow the concept of standard trading units; they can be traded in fractional amounts, making the concept less applicable. ### What might influence a change in trading units by exchanges? - [x] Market conditions and regulatory guidelines. - [ ] The number of individual traders. - [ ] The geographic location of the exchange. - [ ] The number of institutional investors. > **Explanation:** Trading units may be adjusted by exchanges due to changing market conditions and regulatory requirements to ensure efficient trading and liquidity. ### If an investor trades in odd lots, what is one possible disadvantage? - [ ] They are of higher value. - [ ] They are immediately liquidated. - [x] They may attract higher transaction fees. - [ ] They cannot be traded internationally. > **Explanation:** Trading odd lots can lead to higher transaction fees because they deviate from the standard trading unit that brokers and exchanges typically handle.