SIE practice questionhardFree-Riding
A customer in a cash account buys shares and sells them at a profit before paying for the original purchase. This practice is known as:
- AFront-running
- BChurning
- CFree-riding✓ Correct answer
- DDay trading
Explanation
Why C — Free-riding
Free-riding occurs in a cash account when a customer buys securities, sells them before paying for the purchase, and uses the sale proceeds to cover the purchase cost. This violates Regulation T payment rules. Day trading is buying and selling the same day, but free-riding specifically involves selling before paying for the original purchase.
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