Canadian Securities Course (CSC) Level 1 Practice Exam

What are the two types of margin positions?

1. Long and Tight

2. Bullish and Bearish

3. Initial and Maintenance

4. Long and Short

The correct answer is: Long and Short

The two types of margin positions are characterized as long and short. A long position in margin trading indicates that an investor has bought securities expecting their prices to rise, thus benefiting from the appreciation of the asset. Conversely, a short position involves borrowing securities and selling them in anticipation that their prices will fall, allowing the trader to repurchase the securities at a lower price and return them to the lender. This distinction between long and short positions is fundamental in understanding how margin trading functions and the risk and leverage involved. The other response options refer to different concepts. For instance, while bullish and bearish describe market sentiment, they do not directly categorize the types of margin positions. Initial and maintenance relate to the required levels of equity in a margin account but again do not define the positions themselves. Long and tight do not apply to margin positions in this context. Understanding these distinctions enhances your grasp of margin trading dynamics and aids in recognizing investment strategies.