CCE Cryptocurrency Trading & Investment 3 — Questions and Answers
Question 1: What is the Relative Strength Index (RSI) primarily used to identify?
- Trend direction based on moving averages
- Overbought or oversold conditions in a market (Correct answer)
- Volume-weighted average price deviations
- Support and resistance price levels
Correct answer: Overbought or oversold conditions in a market
RSI is a momentum oscillator that ranges from 0 to 100; readings above 70 suggest overbought conditions and below 30 suggest oversold conditions.
Question 2: Which risk management concept describes spreading investment across multiple uncorrelated crypto assets?
- Hedging
- Arbitrage
- Diversification (Correct answer)
- Margin netting
Correct answer: Diversification
Diversification reduces unsystematic risk by allocating capital across assets whose prices do not move in perfect correlation.
Question 3: What is 'funding rate' in perpetual futures contracts?
- The annual interest charged on borrowed collateral
- A periodic payment between long and short traders to keep contract price near spot (Correct answer)
- The exchange fee deducted from each trade
- The rollover cost when moving to the next quarterly contract
Correct answer: A periodic payment between long and short traders to keep contract price near spot
Funding rates are periodic payments exchanged between long and short holders of perpetual contracts to anchor the contract price to the underlying spot price.
Question 4: Which chart pattern is characterized by two peaks at roughly the same price level separated by a trough?
- Head and shoulders
- Double top (Correct answer)
- Ascending triangle
- Cup and handle
Correct answer: Double top
A double top is a bearish reversal pattern featuring two consecutive peaks at similar highs, suggesting the asset is failing to break above resistance.
Question 5: In cryptocurrency portfolio management, what does 'rebalancing' accomplish?
- Converting all assets to BTC during market downturns
- Restoring target asset weightings after price movements shift allocations (Correct answer)
- Adding new coins to the portfolio to improve diversification
- Using derivatives to offset losses on existing holdings
Correct answer: Restoring target asset weightings after price movements shift allocations
Rebalancing involves selling outperforming assets and buying underperforming ones to restore the portfolio to its original target allocation percentages.
Question 6: What does high open interest in a futures market typically indicate?
- High trading volume in the last 24 hours
- A large number of active unsettled contracts in the market (Correct answer)
- The price is at a historically high level
- Low liquidity and wide bid-ask spreads
Correct answer: A large number of active unsettled contracts in the market
Open interest reflects the total number of outstanding futures contracts that have not been settled, indicating the depth of market participation and conviction.
Question 7: Which trading strategy profits from price differences of the same asset on two different exchanges?
- Momentum trading
- Swing trading
- Statistical arbitrage
- Cross-exchange arbitrage (Correct answer)
Correct answer: Cross-exchange arbitrage
Cross-exchange arbitrage exploits temporary price discrepancies for the same cryptocurrency listed on multiple exchanges by simultaneously buying low on one and selling high on another.
CCE Cryptocurrency Trading & Investment 3
What is the Relative Strength Index (RSI) primarily used to identify?