Suitable (Suitability)

AAA

DEFINITION of 'Suitable (Suitability)'

A situation (and sometimes a legal requirement) that an investment strategy meets the objectives and means of an investor. In most parts of the world financial professionals have a duty to take steps that ensure that an investment is suitable for a client. For example, in the United States these rules are enforced by the NASD.

INVESTOPEDIA EXPLAINS 'Suitable (Suitability)'

In other words: is an investment appropriate for an investor? No investment (other than outright scams) are inherently suitable or unsuitable, it depends on the investor's situation. For example, for a 95 year old widow living on a fixed income, speculative investments such as options and futures, penny stocks, etc. are extremely unsuitable because the widow has a low risk tolerance. On the other hand, an executive with significant net worth and investing experience might be comfortable taking on those speculative investments as part of his/her portfolio.

RELATED TERMS
  1. Know Your Client - KYC

    A standard form in the investment industry that ensures investment ...
  2. Unsuitable (Unsuitability)

    A situation where an investment strategy does not meet the objectives ...
  3. National Association Of Securities ...

    The NASD was a self-regulatory organization of the securities ...
  4. Approved List

    A list of pre-selected securities that are deemed fit for purchase ...
  5. Strike Width

    The difference between the strike price of an option and the ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
RELATED FAQS
  1. Why do brokers ask for personal information before they make any trades?

    According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal ... Read Full Answer >>
  2. What risks should I consider taking a short put position?

    The risks to consider before taking a short put position are the odds of sustained weakness in the asset price and a spike ... Read Full Answer >>
  3. What happens if a software glitch fails to execute the strike price I set?

    If you've ever suffered the frustrating experience of having an order not filled or had a strike price fail to execute because ... Read Full Answer >>
  4. In what market situations might a short put be a profitable trade?

    Short puts would be a profitable trade in low-volatility bull markets or range-bound markets. Selling puts is a strategy ... Read Full Answer >>
  5. What is the relationship between implied volatility and the volatility skew?

    The volatility skew refers to the shape of implied volatilities for options graphed across the range of strike prices for ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>
Related Articles
  1. Personal Finance

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from unscrupulous practices means knowing how to spot them.
  2. Retirement

    Investment Suitability 101

    This a fundamental concept from both a legal and practical perspective.
  3. Personal Finance

    Who's Looking Out For Investors?

    If your account has been mishandled, FINRA and the SEC are among several organizations that can help.
  4. Investing Basics

    What Does Spot Price Mean?

    Spot price is the current price at which a security may be bought or sold.
  5. Investing Basics

    What is a Greenshoe Option?

    A greenshoe option is a provision in an underwriting agreement that allows the underwriter to buy up to 15% of the shares in an IPO at the offer price.
  6. Investing Basics

    What Does a Clearing House Do?

    A clearing house is a third-party agency or separate entity that acts as a go-between for buyers and sellers in financial markets.
  7. Options & Futures

    How The New NYSE Binary Options Work

    The New York Stock Exchange has launched its own version of binary options called Binary Return Derivatives Options or ByRDs.
  8. Mutual Funds & ETFs

    4 Ways You Can Invest In Gold Without Holding It

    Owning gold can be a store of value and a hedge against unexpected inflation. Holding physical gold, however, can be cumbersome and costly. Fortunately, there are several ways to own gold without ...
  9. Active Trading Fundamentals

    How To Short Amazon Stock

    With the stock reaching all-time highs and the company gambling on several new business lines, many investors may feel it's a good time to short sell Amazon.
  10. Investing Basics

    What is Meant by Implied Volatility?

    The estimated volatility of a security's price.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!