CCE Cryptocurrency Trading & Investment 2 — Questions and Answers
Question 1: What is the primary purpose of using a stop-loss order in cryptocurrency trading?
- To automatically buy more when price drops
- To limit potential losses by closing a position at a set price (Correct answer)
- To lock in profits at a target price
- To prevent slippage during large trades
Correct answer: To limit potential losses by closing a position at a set price
A stop-loss order automatically closes a position when the price reaches a specified level, capping the trader's downside risk.
Question 2: Which metric measures the percentage gain required to recover from a drawdown?
- Sharpe ratio
- Recovery factor
- Return on drawdown (RoD) (Correct answer)
- Maximum adverse excursion
Correct answer: Return on drawdown (RoD)
Return on drawdown (RoD) expresses the gain needed to recover from a peak-to-trough loss, highlighting how severe drawdowns compound recovery difficulty.
Question 3: In technical analysis, what does a 'death cross' signal?
- The 50-day MA crosses above the 200-day MA
- The 200-day MA crosses above the 50-day MA
- The 50-day MA crosses below the 200-day MA (Correct answer)
- Volume crosses below the moving average
Correct answer: The 50-day MA crosses below the 200-day MA
A death cross occurs when the short-term 50-day moving average crosses below the long-term 200-day moving average, signaling bearish momentum.
Question 4: What does 'slippage' refer to in cryptocurrency trading?
- The fee charged by the exchange per trade
- The difference between expected and actual execution price (Correct answer)
- A temporary network delay in transaction confirmation
- The overnight funding rate for leveraged positions
Correct answer: The difference between expected and actual execution price
Slippage is the difference between the anticipated trade price and the price at which the trade is actually executed, often caused by low liquidity or rapid price movement.
Question 5: Which order type guarantees execution but not price in crypto markets?
- Limit order
- Stop-limit order
- Market order (Correct answer)
- Fill-or-kill order
Correct answer: Market order
A market order executes immediately at the best available price, guaranteeing execution but exposing the trader to slippage.
Question 6: What is 'dollar-cost averaging' (DCA) in the context of crypto investment?
- Converting all crypto holdings to USD stablecoins during bear markets
- Investing a fixed dollar amount at regular intervals regardless of price (Correct answer)
- Averaging down by buying more when price falls sharply
- Using leverage to amplify returns on a fixed capital base
Correct answer: Investing a fixed dollar amount at regular intervals regardless of price
DCA involves investing a fixed amount at regular intervals, reducing the impact of volatility by accumulating more units when prices are low and fewer when prices are high.
Question 7: When a trader uses 10x leverage on a $1,000 position, what is the liquidation risk?
- Position is liquidated if price moves 50% against the trader
- Position is liquidated if price moves 10% against the trader (Correct answer)
- Position is liquidated if price moves 100% against the trader
- Position is liquidated only if the trader manually closes it
Correct answer: Position is liquidated if price moves 10% against the trader
With 10x leverage, a 10% adverse price move wipes out the entire margin, triggering automatic liquidation by the exchange.
CCE Cryptocurrency Trading & Investment 2
What is the primary purpose of using a stop-loss order in cryptocurrency trading?