Day Trading Test
What
is the main benefit of leveraging capital?
a. If
the deal doesn't work, there is no obligation on the trader's part.
b. It
has potential for substantially large returns using borrowed money.
c. It
reduces taxes.
d. It
allows them to avoid being classified as a day trader.
Which
of the following provides some form of ongoing return on investment?
a. Investing
in companies with drastic price range history
b. Investing
in companies with a solid history of consistent dividends
c. Investing
in new companies
d. Short
selling only
Why
is short selling risky?
a. Because
if the price of the security rises endlessly, there is no limit on the losses
that can be incurred
b. Because
the brokers can mandate the seller cover their position at any point
c. Because
there are no laws protecting short sellers
d. Because
inexperienced short sellers can create havoc in the market
What
would an investor infer from a stock price which has steadily risen for three
days?
a. That
someone inside the company is giving false news reports
b. That
insiders are selling all of their stock
c. That
short sellers are covering their positions
d. That
the stock will most likely continue in this direction
Why
is it risky to utilize margin accounts?
a. Because
if the transactions do not result in success, the trader will be responsible
for paying for the losses
b. Because
there are higher taxes on them
c. Because
if other brokers know you are trading on margin, they will purposefully make
your deal not work
d. Because
it is illegal
What
would be the best technique for a day trader to utilize?
a. Fundamental
analysis
b. Technical
analysis
c. Multiple
techniques
d. Charting
What
is "after hours trading"?
a. Trading
on foreign exchanges
b. Setting
limit orders which will be executed after market hours
c. Trading
in currency transactions
d. Trading
in stocks after the market has closed, creating orders which will be executed the
following day
What
is "fundamental analysis"?
a. Stock
analysis based on price and volume
b. Stock
analysis based on the fundamentals of a company such as financial reports
c. Stock
analysis based on a normal trading band
d. Stock
analysis based on the previous day's trading mistakes
How
can an investor ensure a specific entry point?
a. By
placing stop loss orders
b. By
placing a limit order
c. By
short selling a stock
d. By
not trading it
What
view of the market does a short seller have?
a. Bearish
b. Bullish
c. Indifferent
d. It
does not factor into short selling.
What
is the best way to reduce variable expenses?
a. Working
at the library using their computers
b. Working
with a brokerage which charges low commissions from frequent traders
c. Refusing
to pay commissions
d. Refusing
to pay the margin requirements
What
can affect the amount of margin required, apart from minimum requirements?
a. The
exchange the trader trades on
b. The
credit risk of the investor
c. The
amount of capital the trader has outside of their account
d. The
history the trader has of success
What
is the idea behind fundamental analysis?
a. Extensive
mathematics will find winning stocks.
b. Fraud
can be spotted.
c. The
fundamentals of a company help dictate what the share price should be.
d. Opportunities
for arbitrage trading can be found.
What
is meant by days to cover?
a. The
number of days available for trading in the month
b. The
number of days until a locate must be found
c. The
number of days until a transaction clears
d. The
maximum number of days available to the trader to cover their short position
How
is 'days to cover' calculated?
a. Always
ten days as a rule
b. Number
of shares outstanding / Daily share volume
c. Number
of shares less shares held by execs / Daily share volume
d. Depends
on the stock market; the formula varies from market to market
What
is the usual way traders will leverage their trading capital?
a. Borrowing
money from friends and family
b. Taking
out a bank loan
c. Trading
on margin, borrowed money
d. Mortgaging
their homes
What
is day trading?
a. Trading
stocks during the market hours
b. Trading
at least 1 stock per day
c. Buying
stocks using borrowed money
d. Buying
and selling securities on the same day
Why
do arbitrage opportunities seldom exist?
a. Because
the SEC looks for them and fixes them before traders can profit
b. Because
the profits are so small they are not worthwhile
c. Because
the law of one price — supply and demand will close the gap quickly
d. Because
they are illegal
How
effective is fundamental analysis in day trading?
a. It
guarantees profit and success.
b. It
identifies short sale opportunities only.
c. Not
as effective as it is thought to be; it can at best be used for identifying
long term pricing.
d. It
is never effective and is a waste of time.
Why
is it important for day traders to close out all positions before the day is
over?
a. If
they do not, they are no longer day traders.
b. Taxes
are lower if positions are closed out.
c. Overnight
changes in the demand for the security can drastically affect the price.
d. They
are required to if trading on margin.
What
would a trader do if they calculated a price based on fundamental analysis
which was higher than the current market price?
a. Purchase
the stock as it will potentially normalize back to the calculated price.
b. Nothing;
they would wait and see what happens.
c. Tell
their friends to short sell the stock.
d. Call
the company and ask why.
What
is required of a brokerage when they spot a pattern day trader?
a. Automatically
extend $25,000 in margin
b. Freeze
the trader's account until the $25,000 margin requirement is met
c. Nothing;
it is the trader's obligation to self regulate
d. Send
a notice
What
is the SEC definition of a "pattern day trader"?
a. A
trader who profits from short selling
b. A
trader who buys and sells on the same trading day, and does this four or more times
within a 5 day period
c. A
trader who sells and buys stock options instead of stocks
d. A
trader who makes profits; the ones who lose money are not day traders
What
is the ruling for margin requirement?
a. Exchange
Rule 431
b. Exchange
Rule 200
c. Exchange
Rule 001
d. FASB
111
What
is the fundamental idea behind arbitrage trading?
a. That
profit can be made on the pricing differences between two markets on the same
security
b. That
profit can be made based on information leaked by an insider
c. That
profit can be made by short selling stocks
d. That
profit can be made by artificially promoting a stock
Why
is the ruling of a minimum margin often argued?
a. Because
traders feel the government is impeding their ability to make decisions in their
own best interest
b. Because
it creates red tape in the process of becoming a day trader
c. Because
it eliminates a lot of people's ability to become a full time day trader
d. Because
the government has no authority to do so
What
would a news trader potentially do if a stock price falls on seemingly good
news?
a. Nothing;
they are only interested in bad news.
b. Short
sell the stock.
c. Purchase
the stock as it may rebound quickly.
d. Tell
their friends to short sell the stock.
What
would a range trader who sees a breakout most likely do?
a. Nothing,
wait and see what else happens.
b. Tell
their friends to buy the stock.
c. Call
the company to find out what is happening.
d. Purchase
or sell the stock depending on the direction as the price is likely to continue
in the same direction for some time.
What
is "FOREX"?
a. Over
the Counter Bulletin Board
b. A
stock exchange
c. An
options exchange
d. A
foreign currency exchange
What
is the main risk a day trader is subject to?
a. Trade
risk
b. Intraday
risk
c. Exchange
rate risk
d. Interest
rate risk
What
would a day trader do to ensure that profits earned from a security are
maintained without selling it immediately?
a. Place
a stop loss order
b. Short
sell the stock
c. Sell
an options contract on the stock
d. Just
watch the price and see what happens
How
does a day trader fundamentally leverage their capital?
a. By
referring friends to a brokerage and thus earning referral fees
b. By
consistently buying and selling and thus increasing value
c. By
not executing some transactions just to save the $10 commission
d. By
not reporting their activity to the government
What
is "technical analysis"?
a. Stock
analysis based on price movements and charting
b. Stock
analysis based on company fundamentals such as financial statements
c. Stock
analysis based on new reports during the day
d. Stock
analysis based on volume sales
On
which of the following counts are the legal requirements on day traders
criticized?
a. Traders
will often enter transactions overnight in order to avoid the classification,
exposing themselves to more risk and potential loss than if they were allowed
to trade as they know best.
b. No
one can afford a $25,000 margin account.
c. It
makes day trading non accessible to inexperienced people.
d. The
government should not meddle in the public's well being.
What
is a margin account most resemble outside of the stock trading world?
a. Borrowing
money from friends
b. A
bank loan with collateral
c. An
unsecured credit card
d. Selling
bonds
By
doing which of the following would a day trader be leveraging capital?
a. Buying
100 shares of a hot new company
b. Buying
stock options
c. Short
selling stock
d. Passing
on a transaction
What
is "margin trading?"
a. Trading
only in stocks with high potential for return
b. Using
money borrowed from the brokerages to conduct stock transactions
c. Trading
stocks of companies who have high gross margins
d. Selling
stocks without owning them
What
is meant by a margin call?
a. When
a brokerage asks the investor to put money up front before extending the margin
b. When
a brokerage requires a stock trader to pay for loans the brokerage has made to
the trader
c. When
an investor executes a call option
d. When
an investor executes a short sale
What
is short selling?
a. Selling
less shares than you own
b. Selling
a security before owning it, with the intent of later purchasing it at a lower
price
c. Selling
a stock for less than it is trading for
d. Creating
a limit order for a lower price than the current market price
Which
of the following is a positive attribute often associated with short sellers?
a. They
have lower commission rates.
b. They
tend to do extensive diligent research on securities due to the substantially
risky nature of the trades.
c. Their
errors create opportunities for others.
d. Their
actions often indicate market direction.