Trading Platforms & Regulatory Compliance Flashcards
7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Trading Platforms & Regulatory Compliance flashcards as text
What does the term 'latency arbitrage' describe in electronic trading?
Answer: Exploiting small price differences due to speed advantages over other market participants
Latency arbitrage involves using faster technology to exploit tiny price discrepancies before slower participants can react.
Under the Pattern Day Trader (PDT) rule, a trader in a margin account must maintain a minimum equity of:
Answer: $25,000
FINRA's PDT rule requires traders who execute four or more day trades in five business days in a margin account to maintain at least $25,000 in account equity.
Which platform feature allows a trader to automatically close a position at a predefined profit target?
Answer: Take-profit (limit) order
A take-profit order, which is a limit order placed above the current price for a long position, automatically closes a trade when the target profit level is reached.
SEC Rule 15c3-5, known as the 'Market Access Rule,' primarily requires broker-dealers to:
Answer: Implement risk controls before providing clients direct market access
The Market Access Rule requires broker-dealers to have pre-trade risk controls and supervisory procedures in place before providing market access to clients.
What is 'slippage' in the context of trade execution on a trading platform?
Answer: The difference between the expected execution price and the actual fill price
Slippage is the difference between the price at which a trader expects to execute and the actual price received, often occurring in fast-moving or illiquid markets.
A Consolidated Audit Trail (CAT) under SEC rules is designed to:
Answer: Create a comprehensive record of all orders and trades across US equity and options markets
The CAT system creates a single, comprehensive database tracking all order lifecycle events across US equity and options markets to enhance regulatory oversight.
In a trading platform's order routing system, a 'smart order router' (SOR) is designed to:
Answer: Route orders to the venue offering the best price and liquidity across multiple exchanges
A smart order router automatically analyzes multiple trading venues and routes orders to achieve the best available execution, fulfilling the broker's best execution obligation.