Discretionary trading allows which type of decision-making?

• A. The client decides on every element of the trade
• B. The investment advisor makes key trading decisions
• C. The market determines the timing and price of trades
• D. Only the dealer makes decisions without client input

Answer: (B)

Discretionary trading is characterized by the advisor having the authority to make key trading decisions on behalf of the client. This means that the investment advisor can independently select securities, determine the timing of trades, and manage the portfolio according to the client's overall strategy and risk preferences without requiring the client's approval for each individual trade. This approach allows for quicker decision-making and can be particularly beneficial in fast-moving markets where timely actions are essential to capitalize on market opportunities.

The other choices focus on various forms of decision-making that do not align with the discretionary model. For instance, client-directed approaches require the client to approve every aspect of the trade, whereas in discretionary trading, the advisor operates with a level of autonomy. Additionally, stating that the market itself determines trade timing and price is not representative of discretionary trading, as that would imply a lack of active human decision-making by the advisor. Lastly, while it is true that a dealer may make decisions, the key aspect of discretionary trading is the investment advisor's role in making those decisions based on a thorough understanding of the client's goals and risk tolerance. This emphasizes the personal and expert touch that discretionary trading incorporates.