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Quizzes > Quizzes for Business > Finance

Take the Trading Knowledge Assessment Quiz

Assess Your Trading Expertise in Minutes

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art illustrating a fun and engaging quiz on trading knowledge assessment

Ready to test and enhance your trading expertise? This trading knowledge quiz presents real-world market scenarios, risk management challenges, and technical analysis questions in an engaging way. Ideal for learners and instructors seeking a concise yet thorough trading assessment, it highlights strengths and pinpoints areas for growth. Dive deeper with the Forex Trading Knowledge Quiz or sharpen fundamentals in the Stock Trading Fundamentals Quiz. All quizzes can be freely tailored in our editor for personalized learning.

Which order is executed immediately at the current market price?
Market Order
Limit Order
Stop Order
Trailing Stop Order
A market order executes immediately at the best available price. Limit and stop orders execute only when specified conditions are met, and a trailing stop adjusts with the market.
What is the primary purpose of a stop-loss order?
Lock in profits
Limit potential losses
Guarantee trade execution at desired price
Increase leverage
A stop-loss order closes a position when price reaches a set level, limiting further losses. It does not guarantee a specific execution price nor affect leverage.
Which technical indicator measures overbought or oversold conditions?
RSI
MACD
Moving Average
Bollinger Bands
The Relative Strength Index (RSI) quantifies momentum on a scale of 0 - 100 to show overbought (above 70) or oversold (below 30) levels. Other indicators track trends or volatility.
What does EPS stand for in fundamental analysis?
Earnings Per Share
Equity Price Setting
Economic Price Signal
Effective Price Spread
Earnings Per Share (EPS) represents net income divided by the number of outstanding shares, reflecting a company's profitability. The other terms are incorrect.
Which type of brokerage account allows borrowing funds to trade?
Cash Account
Margin Account
Retirement Account
Custodial Account
A margin account permits traders to borrow against their securities to increase buying power. Cash accounts require full payment for positions with no borrowing.
You own shares and want to protect against a decline. Which option strategy provides downside protection?
Covered Call
Protective Put
Straddle
Iron Condor
Buying a protective put gives the right to sell at a set strike price, limiting downside risk. Covered calls generate income but don't cap losses like a put does.
If you risk 2% of your capital per trade and set a stop-loss 5% away from entry, what determines your position size?
Fixed dollar amount regardless of stop distance
Equity volatility only
Stop distance relative to risk percentage
Only account balance
Position size is calculated by dividing the dollar risk (2% of capital) by the distance to the stop-loss (5% of price), so stop distance directly affects size.
Which indicator is specifically designed to measure trend strength regardless of direction?
Relative Strength Index
Average Directional Index (ADX)
Stochastic Oscillator
On-Balance Volume
The ADX quantifies the strength of a trend irrespective of direction. Other indicators measure momentum, momentum extremes, or volume flow.
The head and shoulders chart pattern typically signals which of the following?
Continuation of uptrend
Reversal from bullish to bearish
Acceleration of volatility
Neutral consolidation
After an uptrend, a head and shoulders pattern indicates a potential reversal to a downtrend. It's not a continuation or neutral pattern.
A high P/E ratio in fundamental analysis generally suggests what about a stock?
Undervalued relative to earnings
Overvalued or high growth expectations
Low future earnings potential
High dividend yield
A high price-to-earnings ratio often reflects high growth expectations or overvaluation. It does not directly indicate valuation or yield.
Which order would you use to allow profits to run while adjusting downward risk as price moves favorably?
Limit Order
Market Order
Trailing Stop Order
Fill or Kill Order
A trailing stop order moves the stop price in the direction of profit, locking in gains while capping downside risk. Limit and fill-or-kill orders serve other purposes.
Buying a futures contract obligates the buyer to do what?
Receive the underlying asset at a future date
Pay a premium upfront
Have the right but not the obligation to buy
Cancel anytime without cost
A futures contract creates a binding obligation to take delivery of the underlying asset at expiration. It differs from an option, which carries no delivery obligation.
Which financial statement provides details on a company's operating, investing, and financing activities?
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Shareholders' Equity
The cash flow statement breaks down cash inflows and outflows into operating, investing, and financing sections, revealing liquidity and cash management.
Under the pattern day trader rule, a US broker requires a minimum account equity of what amount?
$5,000
$10,000
$25,000
$50,000
Regulation requires traders who execute four or more day trades within five business days to maintain at least $25,000 in a margin account.
Which derivative's pricing is most directly affected by changes in implied volatility?
Stock
Option
Cash bond
Exchange-traded fund
Options prices include a volatility component, so implied volatility fluctuations have a direct impact on option premiums. Other instruments are less sensitive.
Which assumption underlies the Black-Scholes option pricing model?
Markets have frictionless trading and continuous price changes
High transaction costs
Discrete trading intervals
Variable interest rates
Black-Scholes assumes continuous trading, no transaction costs, constant interest rate, and constant volatility to derive a closed-form solution.
Delta hedging an option position aims to achieve what?
Profit maximization regardless of price movement
Immunization against small price changes in the underlying
Locking in implied volatility
Guarantee against time decay losses
Delta hedging involves offsetting an option's delta with underlying to neutralize first-order price risk. It does not address volatility or theta risk fully.
In discounted cash flow (DCF) analysis, increasing the discount rate will have what effect on the present value?
Increase present value
Decrease present value
No effect
Invert cash flow sign
A higher discount rate reduces the present value of future cash flows, reflecting a higher required return or perceived risk.
A long straddle strategy becomes profitable when:
Underlying price remains stable
Implied volatility falls
Underlying price moves significantly in either direction
Interest rates change minimally
A long straddle buys both a call and put at the same strike, profiting when the underlying moves sharply up or down beyond total premiums paid.
Vega in option Greeks measures sensitivity to changes in which of the following?
Underlying asset price
Time to expiration
Implied volatility
Interest rates
Vega quantifies the change in an option's price for a one-point change in implied volatility, helping traders manage volatility exposure.
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Learning Outcomes

  1. Analyze diverse trading scenarios to choose optimal strategies
  2. Evaluate risk management techniques for portfolio protection
  3. Identify key technical indicators and chart patterns
  4. Apply fundamental analysis to market decision-making
  5. Demonstrate proficiency in trading account operations
  6. Master concepts of derivatives and leverage usage

Cheat Sheet

  1. Technical Indicators - Jump into the world of moving averages and Bollinger Bands to spot price trends and volatility like a pro. These nifty tools help you smooth out market noise and predict potential breakouts with more confidence! Explore indicators on Investopedia
  2. Chart Patterns - Flags, pennants, head and shoulders - oh my! Learn to identify continuation patterns that keep trends rolling and reversal patterns that signal a change in direction. Mastering these shapes is like having a secret decoder ring for price action. Check out Bapital's chart guide
  3. Support and Resistance - Think of support as a safety net and resistance as a ceiling for price. By marking these levels, you'll pinpoint smart entry and exit zones and avoid buying at the top or selling at the bottom. Dive into support & resistance on Bapital
  4. Candlestick Patterns - From indecisive Dojis to bullish Hammers, candlestick patterns reveal market sentiment in a single look. They're like little mood rings for traders, showing when bulls or bears are in charge. Get candlestick insights at Toxigon
  5. Volume Analysis - Volume is the heartbeat of the market. High trading volume confirms strong moves, while low volume warns of weak trends - learn to read these signals to avoid false breakouts and ride real momentum. Learn about volume on Toxigon
  6. Stop-Loss Orders - Never let one bad trade ruin your day! Stop-loss orders automatically close a position at a set price, capping potential losses and keeping your account intact - even when emotions run high. Discover risk management on eToro
  7. Position Sizing - How much to risk per trade? Position sizing is your answer. By risking a consistent percentage of your capital, you protect yourself from wild swings and build long-term discipline. Master sizing on eToro
  8. Risk-Reward Ratio - Before you hit "buy," ask yourself: is the potential reward worth the risk? A solid 1:2 or 1:3 ratio means your winners can easily outpace your losers over time. Read about ratios on eToro
  9. Trailing Stops - Lock in profits as the market moves in your favor using trailing stops. These dynamic orders trail the price at a set distance, helping you ride winning trades while protecting gains. Explore trailing stops on ParlarHolding
  10. Diversification - Don't put all your eggs in one basket - spread your capital across assets to smooth out returns and reduce risk. A diversified portfolio is your safety blanket during choppy markets. Learn diversification at InsightVault
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