FINRA Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

Which of the following activities is not prohibited in securities trading?

Matched orders

Churning

Freeriding

Short selling

Short selling is a legitimate trading activity in the securities markets where an investor borrows shares of a stock and sells them, hoping to buy them back later at a lower price. This practice is often used as a strategy to profit from a decline in a stock's price.

Unlike matched orders, which involve two parties coordinating to create the illusion of activity in a security without any genuine change in ownership, or churning, where a broker excessively buys and sells securities in a customer's account to generate commissions, short selling is allowed under regulations set by the SEC and FINRA as long as it is conducted in compliance with the rules. Freeriding, which involves selling a security before paying for it and not settling the transaction, is also prohibited.

Thus, short selling is the only activity listed that is not prohibited, making it a common and accepted practice in the security trading landscape.

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